Vardhman Special Steels Limited (NSE: VSSL) Q2 2025 Earnings Call dated Nov. 08, 2024
Corporate Participants:
Sachit Jain — Vice Chairman and Managing Director
Sanjeev Singla — Chief Financial Officer
Analysts:
Mudit Bhandari — Analyst
Unidentified Participant
Angad Katdare — Analyst
Radha Agarwalla — Analyst
Pramod Kumar — Analyst
Hardik Shah — Analyst
Adit Shah — Analyst
Sana Mehta — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Vardhman Special Steels Limited Q2 FY25 Earnings Conference Call, hosted by IIFL Securities Limited. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions].
I now hand the conference over to Mr. Mudit Bhandari from IIFL Securities Limited. Thank you, and over to you, sir.
Mudit Bhandari — Analyst
Thank you, Palak. Good afternoon, everyone. On behalf of IIFL Securities, I welcome you all to Second Quarter and First Half of FY25 post-results earning conference call of Vardhman Special Steel Limited. On this call I introduce Mr. Sachit Jain, Vice Chairman and Managing Director; Mr. Sanjeev Singla, Chief Financial Officer; Mr. R.K. Rewari, Executive Director over this call.
Now, I hand over to management for their opening remarks which will then be followed by a question-and-answer session. Over to you, sir.
Sachit Jain — Vice Chairman and Managing Director
Okay. Thank you so much. Ladies and gentlemen, a very good afternoon to all of you, and thank you for joining our call today. In addition to the names mentioned, we also have Sonam, our Company Secretary on the call.
We’ve just closed a very interesting quarter. We’ve had our highest sales ever in a quarter. So that has been very interesting. We have also just finished a physical Board meeting because Ito-san, the Board Member and President of the Steel Division of Aichi was here. And we’ve had very interesting discussions. And as I said earlier, so serious discussions on our proposed new plant have begun. We are discussing costs, layouts, machine reselection [Phonetic], product mix, all those discussions are going on. I think we’ll be ready to make a final announcement sometime in the middle of next year. But that’s the thinking as of now. And we are on track with our plan for when we will need our greenfield plant to start operating.
In the interim, we’ve had some very good developments in the plant. Earlier we had announced that we had tested a capacity of 265,000 tonnes which gave us a rolled product capacity and sellable material of about 225,000 tonnes. We have now tested 285,000 tonnes of melting capacity, which means that once the rolling mill expansion is completed, we should be able to produce 250,000 tonnes of saleable material. And now our team is working, can we extend this further? Our next target will be to touch, test, and then consolidate if we are successful at the 300,000, which is the limit for our license from the Environment Ministry.
If we are able to reach those level of 300,000 tonnes, then we will make an attempt to get a license to increase the environmental approval for more than 300,000. That’s some distance in the future. So, the point was that at least once we mark it, orders and all start growing. The plant is keeping ahead and will be able to meet the requirements of the market. And so growth for the next three years is now visible to us.
In addition, I wanted to also share a very important development. A new Board Member, Mr. Kalsi, who has been a member of the Executive Board of Maruti Suzuki, 40 years with Maruti, as well as his last assignment has been Head of Marketing of Maruti. Overall, he has had a stellar career across several functions. And the entire Board is very excited to have him join the Board and get a perspective from an OEM’s perspective. And of course, Mr. Hemant Bharat Ram from the DCM Group has also joined us as a Board Member in the last Board meeting. So, two new Board Members have joined us this year as one Board Member retired, and two more Board Members are expected to retire next year. So, in succession planning at the Board, we are doing that in a planned manner.
Working capital utilization of course has increased because of increased sales, but our debt levels remain reasonable, which gives us the ability to fund the — all the ongoing expansion plans. The new proposed plant, when it comes up, will require reasonable capital. So, in the next year or two there would be some capital infusion in the company. But as the plans get finalized, as we announce the project, then those plans for fundraising, etc., also would come in. We have also talked to bankers, so there is sufficient funds available, in case of all that also seems to be on track.
Two other things I wanted to share with you before I turn over to Mr. Singla, our CFO. The trend towards green steel, circular economy, etc. [Technical Issues] is on. And indications coming in from various auto OEs about the sustainability teams, and the interest in this topic is high. And hopefully, in the next year or two, we will start seeing big signs of this in terms of translating into business results.
Talks are always the forerunner of actual action happening and we are having serious discussions with some of the OEs. I am also happy to report that we have been successful in getting approval for replacing Japanese imported steel with our steel in one of the large automobile OEs. And for this, we will become a direct supplier to the OE. As of now, we are normally suppliers to Tier 1 and sometimes Tier 2. But in this case, we will become a Tier 1 supplier directly to the OE. So, this is something I think our team has worked very hard and our partners, Aichi have supported us very strongly in getting this approval. So, we will be replacing direct Japanese steel, which is coming from Sanyo and Daido, so we will be replacing that. We are working with another Japanese OE in India to replace steel coming from India — from Japan. So, those are the kind of efforts going on. As our quality levels have stabilized with Toyota, and with support from Aichi crossing two years — now crossing five years actually, two years of the second three-year term, I think the confidence that they have in our processes also have increased.
So, that’s all as far as my opening remarks are concerned. Mr. Singla will take you through some numbers, and then we will have a Q&A.
Sanjeev Singla — Chief Financial Officer
Right, sir. Thank you, sir. Good afternoon, everybody. For this quarter two, we have a decent sales number. We have achieved our highest sales in terms of quantity, it is 59,000 tonnes as against 49,000 tonnes in the previous corresponding quarter, registering a 20% increase. And in terms of rupees also, it’s a 20% increase, it is INR494 crores over INR415 crores last year. Our EBITDA has gone by 31%, it’s a combination of various factors, raw material prices, valuations, and of course the increase in sales. So EBITDA per tonne in this quarter is INR8,200.
For the H1 — for first half H1, the total sales in terms of quantity is 109,000 tonnes as against 96,000 tonnes in the corresponding H1 of last year, registering an increase of 13%. In terms of rupees, revenue is INR909 crores as against INR824 crores, with an increase of 10.31%. EBITDA is INR96 crores, registering an increase of 31%. So, EBITDA per tonne for the full H1, currently it is INR8,800, well within the stated range of INR7,000 to INR10,000. As a resultant, our PAT for the H1 stands at INR51.9 crores as against INR37 crores corresponding H1 of last year.
So that’s all on this financial performance for the quarter. So I request now for the question-and-answers.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Jain from RU Investments. Please go ahead.
Unidentified Participant
Yeah. Hi. Good evening. Can you hear me?
Operator
Yes, sir. You’re audible.
Sachit Jain
Yes, go ahead.
Unidentified Participant
Okay. Hi. Yeah. Hi. First of all, congrats, I think we are — every quarter we are having a good result. I mean, the bonus and the plan expansion is all tracked. A couple of questions. Number one on the micro, the others will be on the macro thing. First is the recent trend of the record what top line we are talking, we are making new records. Can it be continued? Because the reason is if I’m not wrong, please correct me. Q3 or Q4 we have a shutdown planned as always. So that’s the question number one.
Question two is on our EBITDA or EBITDA per tonne as per the industry standards, we know it’s around INR8,000 or whatever. But again, the trend is it possible we can continue or make it higher considering the latest developments on specifically the latest one is the Trump policy, tariff from the Chinese. And even India, I think as you have recently heard in the last couple of months, they are trying to put tariffs on steel imports from China. So, is it safe to assume that our EBITDA per tonne will be moving up for even one what month, or even for the overall Indian steel industry? Thank you.
Sachit Jain
So one, it’s not that every year we have a shutdown in Q3 and Q4. The shutdown that we are having is for the expansion we are having. We are adding a new equipment called Kocks Block for which we will be having a shutdown which was earlier planned in third quarter, which will go into the fourth quarter. Yes, so we are having about a month shutdown, and which is why sales in the second half are definitely going to be lesser than the first half. In any case, second quarter is the highest sales because the auto OEs all prepared for Diwali sale, which is a bumper sale. So as a steel supplier for us, it becomes Q2. So Q2 is normally the highest sale. But once this shutdown is complete, the Kocks Block is ready, then we will have another five days shutdown probably in quarter two of next year, four or five days shutdown when we attach a new reheating furnace. After that our rolling mill capacity will be complete, which means it should be able to take 300,000 tonnes of input, giving us out 275,000 tonnes of rolled product, which translates — which will translate to eventually 270 — 268,000 to 270,000 tonnes worth of sellable material.
The second question you asked is about EBITDA per tonne. Our stated range is INR7,000 to INR10,000 EBITDA per tonne, and we are within that range. Currently, the markets are weak, as you rightly mentioned, because of imports from China. And therefore, there is a huge influx of imports, not in our product category as much but more in HRCs, hot rolled coils, which puts downward pressure on steel sentiment. And which is why there is pressure from the OEs to reduce prices. Our costs have also come down, but prices did come down in Q2 beyond what we anticipated. So, that’s why the Q2 margins are a bit lower than Q1 margins.
Moving ahead, once — we have already indicated, next year our guidance, we should be able to up our guidance from this INR7,000 to INR10,000 range to INR8,000 to INR11,000. So, there are a few reasons for that. One, our solar plant will be commissioned most likely by March, which will lead to one, reducing that carbon footprint as well as reducing some costs of power. So, that is one.
Second, today to meet our rolling — our sales, we have a lot of job work outside processing charges because of lower rolling capacity than what we have been selling and the shutdowns for this project. So, after August of next year, it will come down in Q1 itself from next year, but the second half of next year it will come down drastically. So, those margins will also get added from that, the profit element of that will get added to the bottom line, and a few other savings we have in mind. So, overall, we should be able to, very confidently move upwards with INR8,000 to INR11,000 of EBITDA per tonne range.
I hope that answers both of your questions.
Unidentified Participant
Yeah. Thanks, and once again, best of luck. Thank you.
Sachit Jain
Thank you.
Operator
Thank you, sir. The next question is on the line of Angad from Sameeksha Capital. Please go ahead.
Angad Katdare
Thank you for the opportunity. Congratulations on the good set of numbers [Phonetic].
Operator
Sorry to interrupt you, sir. Sir, can you use your handsets, please?
Angad Katdare
Audible now? Hello?
Sachit Jain
You’re audible, but it’s a little muffled, but go ahead, let me try to understand to hear you.
Angad Katdare
My first question is on the sale of billets this quarter, we sold around 2,600 metric tonnes of billets, should we expect a similar trend going forward? And can you throw some light on the realization and EBITDA from billet sales, if you can give a number on that?
Sachit Jain
So, billet sales is not part of our plan. So this is very opportunistic, at times when we can’t take more rolling and our — as I told you our melting capacity went up, we tested higher capacity levels. So it’s just that since we tested higher capacity we sold it. There is almost zero margin on this business. So, this is just to make sure that we — to test our billet making capacity. So we are ready that once the rolling mill is ready by August or the expansion rolling capacity is ready and as markets pick up, hopefully next year the markets will be better then our ability to keep producing and to meet the market requirements would be higher. So this is on and off kind of a thing and zero margin business. So this is not our — please don’t look at this business at all.
Angad Katdare
Sure. Clarity is helpful. My second question is on the — we are seeing kind of a slowdown in the automobile OEMs, we are reading news on increasing inventory with dealers. Can you throw some light on your end, what you are seeing since you interact with them regularly?
Sachit Jain
No, so there clearly is a slowdown, both in terms of domestic market, commercial vehicles are not doing well, cars are flattish, and tractors are also slow. Two wheelers — motorcycles are doing well. Also, exports have got affected, so some of our sales to exporters have got a bit affected. So, market conditions are not too bright. But that’s why I said, we hope market conditions will be better next year.
Angad Katdare
So are we still giving the guidance of 2.1 lakh volume sales for FY25 or any change in that front?
Sachit Jain
Yes, as of now we expect to do about 2.1 lakh, that’s our thinking. But we’ll see as things go along it may go a little lower. But see we are not too worried about sales just now, because our products are moving in the right way. And just now we are also capacity constraint in our rolling side. So once rolling mill capacity comes up after August then of course volumes become an important issue into the market.
Angad Katdare
Sure. Clarity [Speech Overlap]
Sachit Jain
We have a big shutdown coming, as I said, there is a shutdown of 30 days, so if sales slow down a bit, we are not worried just now.
Angad Katdare
Sure. And one last question on any updates on the forging plants along with the greenfield?
Sachit Jain
No, no. See, with our Japanese partners, please understand that a lot of planning [Technical Issues] visitations happen and decision-making takes its own time. So nothing on the anvil immediately.
Angad Katdare
Thank you. I’ll get back in the queue.
Operator
Thank you, sir. The next question is from the line of Radha from B&K Securities. Please go ahead.
Radha Agarwalla
Hello, sir. Thank you for the opportunity and congratulations on achieving the highest sales for this quarter, all time high. So my first question was this Kocks Block capex that you mentioned. So how much capex are we doing in this? And what will be the benefit that we receive out of it? So apart from reducing the time for shifting the sizes, can it also bring down the wastage?
Sachit Jain
So, we have two major investments coming up. The Kocks Block and the reheating furnace together is going to cost us about INR160 crores. The main benefits after this capex are going to be the following. One, our capacity will go up. And therefore, we will be able to save all the margins on the outside rolling. So, that will immediately get added to the bottom line. Second, our billet size will go up, so our realizations will go up, our yield will go up.
Third, with the Kocks Block, our inventory levels will come down and our ability to serve big customer will become better. And quality will become far more precise. So, some of the approvals that we have got recently, they want very precise diameter control, that is not possible without a Kocks Block. So, the kind of market segment we want to enter into and consolidate our position in, they require very precise diameter control, that is not possible without this kind of a block.
Radha Agarwalla
Sir, how much margins can we expect improvement maybe in terms of broad ballpark percentage…
Sachit Jain
As I said, as I’ve said that our range from INR7,000 to INR10,000 is likely to move up to INR8,000 to INR11,000. So once things consolidate we will give further guidance and I’ve already said in the past, aspirationally I want to move to INR10,000 to INR12,000 range.
Radha Agarwalla
What would be the payback period [Speech Overlap]
Sachit Jain
In the next three to — it’s not in the — it’s not 10 years later but in the next three, four years we want to reach those levels.
Radha Agarwalla
If you list your investment in the Kocks Block, so what could be…
Sachit Jain
Sorry.
Radha Agarwalla
Sir, just considering the investment in the Kocks Block and the benefits that you stated, so what could be the payback period from this investment?
Sachit Jain
We don’t look at these things in that manner. Overall, if we are able to increase our volumes and if you are able to, so look at it this way, from 210,000 tonnes we were able to go to 250,000 [Phonetic] tonnes, that’s 40,000 tonnes more. And a lot of costs already taken into account, so incremental EBITDA is way higher than the existing business. So you can please do your calculations yourself. So on INR10,000 to INR12,000 we are targeting, I’m not saying we are ready to announce that we are confident of that, but our target will be between to — around INR250 crores of EBITDA.
Radha Agarwalla
All right, sir. Sir, second question is that you spoke about…
Sachit Jain
Again, please, let me re-emphasize I’m not giving a guidance that we are ready at that level, but I think that is a target you will aspire for.
Radha Agarwalla
All right sir. Second question is that you spoke about becoming a Tier 1 supplier to the OEs from a Tier 2 supplier. And also you spoke about — you are in talks with some other OE also. So, currently, as I understand, our direct supplies to OE is zero because we are a Tier 2 supplier. So, in future, in next three years, what percentage of your sales do you expect to go to the OEs? And will this also have an improvement in your margin profile?
Sachit Jain
So very few OEs have their own gear making operations. So mostly OE’s business is all buying components and assemblies from Tier 1. So steel companies of our kind, which is alloy steel companies for forging industry are normally always Tier 2 or Tier 3 suppliers. This is one of the very few cases. So as a percentage term it will be a very small one. But from prestige point of view it is very high. And yes, margins will improve with this business.
Radha Agarwalla
All right, sir. Sorry, third question is that in this quarter I can see that our receivable days have increased. So in FY24 it was around 58 days, that has gone up to 64 days. So just wanted to know why the increase in this quarter in the receivable days.
Sachit Jain
The increase in this quarter is because there is a overall slowdown, to maintain volumes we have gone to certain other segments which are non-strategic customers where outstandings are higher. And that is the reason. This is a temporary thing. Once the markets — our regular markets pick up, then we will back to our normal levels.
Radha Agarwalla
Alright, sir. Sir, in this all-time high quarterly volumes that we have done, how much of it to be — has been outsourced?
Sachit Jain
[Speech Overlap] I mean, value. We’ll get back. Can you send a mail, we will get back with the answer that exact figures are available out here.
Radha Agarwalla
Okay, sir. Sir, because our volume growth is higher than — is significantly higher compared to the auto industry growth. So any…
Sachit Jain
Yeah. As I said that we had tested higher capacity, and therefore we took in orders which are not part of our regular order profile at lower margins, and those with higher outstandings also. This is not our regular product mix. So, this is a temporary thing to sell what we could produce. So, this is not part of our regular product mix, so, which is why we have grown beyond what auto industry has grown.
Radha Agarwalla
So, our user industry mix in this quarter would have changed compared to the previous quarters, and it will go back to previous levels.
Sachit Jain
[Speech Overlap] was, if he hadn’t done what we did, our sales would have been lower and EBITDA per tonne would have been higher, and our outstanding would have been lower than what we have today. But absolute EBITDA would also have been lower.
Radha Agarwalla
Understood sir. Sir, lastly, in future any investment decisions…
Operator
May we request that you return to the question queue, please?
Radha Agarwalla
Okay, thank you.
Operator
Thank you, ma’am. [Operator Instructions] The next question is from the line of Mudit Bhandari from IIFL Securities. Please go ahead, sir.
Sachit Jain
Sorry, may I — I have the answer now. So INR9 crore of job work has been done in this quarter. So that was an answer to how much money has been paid for outside job work. Great. Next question, please.
Operator
Mr. Mudit, your line is unmute.
Mudit Bhandari
Thank you, sir. Just one first basic question on what is the difference between Tier 1 and Tier 2, Tier 3 suppliers in general with the industry regarding the product they are supplying? And what incremental product will we be supplying that will — which will be clarified as Tier 1 supplier for the OEM?
Sachit Jain
So normally Tier 1 suppliers would be gear manufacturers, crankshaft manufacturers, connecting rod manufacturers, piston pin manufacturers. So basically our customer base are the ones who would be Tier 1s or steering systems. So customers — people like Sona Comstar, they would be Tier 1s, or Shriram Pistons would be Tier 1, or Highway Industries would be Tier 1. These companies were forging and machining companies would be Tier 1s. And steel companies are normally Tier 2s or in some cases Tier 3s. So, in this particular case, this OE has their own gear shop, so they have their own gear making rather than getting these gears made from outside. So, therefore, they buy steel. So, this is a unique case of OE directly buying steel. So, the difference is, in this case, we are supplying steel to the OE. In other cases, the OE buys gears or connecting rods or crankshafts or piston pins, and so on, those kind of products.
Mudit Bhandari
Got it, sir. Got it. Thank you. And previously you mentioned that there has been a little impact because of the global commodity prices, especially because of the China effect maybe one of us. The reason you mentioned was it has more impact on HRC prices. So I believe we are not completely immune to the HRC prices because our process…
Sachit Jain
No, no, we are not immune. No, I never said we are immune. I said we are not directly affected by imports, but sentiments got affected because of lower prevailing steel prices. And therefore, the OEs pressed a higher reduction than what was, in our opinion, due. And therefore, our Q2 margins are lower than Q1 margins.
Mudit Bhandari
Got it. Got it. And any number…
Sachit Jain
But still within our normal range. Sorry?
Mudit Bhandari
Yeah, sir. Any number which you would like to quote for realizations for Q1 and Q2, either percentage or number?
Sachit Jain
There was a INR1,500 per tonne reduction in price between Q1 and Q2.
Mudit Bhandari
Okay.
Sachit Jain
For July 1 prices came down by INR1,500.
Mudit Bhandari
Okay. And we have not taken any price hike or decrease after Q2 in Q3.
Sachit Jain
Yeah, Q3 has not yet been finalized.
Mudit Bhandari
Okay. And how does it work for the auto components? Like whether they fix the prices, as far as I know for the half yearly basis, is it like that or…
Sachit Jain
No, this is quarterly changes of steel prices.
Mudit Bhandari
Okay. Okay. Got it. And lastly, upon your EBITDA per tonne guidance, the range you mentioned, the reason you mentioned for the increase was because of solar plant commissioning. So, broadly, just whether INR1,000 EBITDA per tonne increase, is it wholly attributable to solar plant commissioning? The number seems quite big.
Sachit Jain
No, no, I said there are several factors including these factors.
Mudit Bhandari
Oh, okay, okay. So probably I missed it. Can you just quote the factors?
Sachit Jain
The solar plant is one. The outsourced material that we will be rolling within the plant. The job work charge is that I mentioned, INR9 crores per quarter of this quarter. So those would all largely become in-house. So there will be the margin part of that will get retained in the company. Then our yields will go up because of bigger billet size. Those are the main benefits. And some benefits of Kocks which have to be trailed. I mean, we anticipate some benefits coming because of the Kocks Block also, in terms of cost saving. There will be inventory reduction because of the Kocks Block. But we believe there could be some improvement in yields because of quality improvements. But those have to be tried, we cannot commit on those figures.
Mudit Bhandari
Okay. Thank you so much.
Operator
Thank you, sir. The next question is from the line of Pramod Kumar from Growel [Phonetic]. Please go ahead.
Pramod Kumar
Hi, sir. Thank you for the opportunity. Sir, just a couple of booking questions. What is your cost of fund sir, if you could help us with that, or your cost of borrowing?
Sachit Jain
Can you repeat that? Can you repeat that? Sorry.
Pramod Kumar
Sir, what is the rate of interest that you are paying for the amount that is borrowed?
Sachit Jain
So working capital is around 7.5% and term loans are negligible.
Pramod Kumar
Right, sir. So the reason I asked is…
Sachit Jain
But whatever there is term loans are there are around 8%.
Pramod Kumar
Right. So if you look at FY24, we were about 10% of interest. And if you look at the first half, the rate of interest is coming to around 7%, 7.5%. So like, how is it that you got a reduction in [Indecipherable]?
Sachit Jain
See 10% — we never — we’ve never borrowed a 10% in my last several years, I don’t remember being borrowing a 10%. So please check with the CFO directly if you have any clarifications. We’ve never borrowed a 10%.
Pramod Kumar
Okay, Sir.
Sachit Jain
Yeah. Next, please.
Pramod Kumar
[Speech Overlap] interest cost.
Sachit Jain
Yeah, I’m saying we’ve never borrowed a 10%. If you have a clarification, please have that separately offline, check with our CFO, he will be — happy to clarify whatever doubt you have.
Pramod Kumar
Sure. Sure, sir. I will do that. And in terms of the aspiration of your debt to equity, what range would you be more comfortable with?
Sachit Jain
Debt to equity currently in the new plant, in this plant, if unless the expansion comes up will be down to zero in the next three years — three to four years. So with the new plant, once things get firmed up and the capital structure of the new plant come up, then there will be borrowings, there will be some equity. Overall, we hope to remain below 0.5:1, and in any case below 1:1, but our target will be below 0.5:1.
Pramod Kumar
Fine sir. Thank you so much, sir.
Operator
Thank you, sir. The next question is from the line of Hardik Shah from Patel Family Office [Phonetic]. Please go ahead.
Hardik Shah
Hello?
Operator
Yes, sir. You…
Hardik Shah
Hi. Am I audible?
Sachit Jain
Yes, you go ahead, please.
Hardik Shah
Hi sir, congratulations on this — all numbers. Sir, I just wanted to ask a basic question like what percentage of your revenue is generated by your top 10 clients?
Sachit Jain
Very difficult. We are very diversified but go ahead.
Sanjeev Singla
But just top 10 customers, I think we are disclosing in our balance sheet for the top five customers. But as per your question, top 10 customers will be contributing around 35% to 40% of our revenue.
Hardik Shah
Okay, sir. And any expectations for that [Speech Overlap]
Sachit Jain
You can specifically send in an e-mail to get an exact answer. But…
Hardik Shah
Okay, sir. I’ll get in touch.
Sachit Jain
We don’t target it this way. We don’t target these things this way. We take all markets. We don’t target a specific number or a range for the top 10 customers.
Hardik Shah
All right, sir. And also, what metric…
Sachit Jain
I am just saying this is not a metric that we monitor at management level. As long as it’s diversified, it’s not too concentrated.
Hardik Shah
Understood, sir. And sir secondly, what is — I mean, on a financial front, what is the benefit that we are getting from any step towards a sustainable initiative, like for the carbon — reducing the carbon footprint?
Sachit Jain
As I said, as of now there is zero benefit either in terms of financial or in terms of business which already we have got. But in terms of indication we are getting from customers and indications we are getting from government and in talks with governments, both will follow. So there will be financial benefit in terms of carbon trading mechanism coming up in the country. An element has been fixed at a limit of around 2.2 carbon footprint tonnes per — of carbon per tonne of steel is going to be fixed at the norm. So, the figures below 2.2 will be treated as green steel or there will be some definition, but we will be at, by then, 0.45. So, significantly below 2.2. So, we will be a beneficiary of any scheme that the government comes up with.
Secondly, as terms of — as far as OEs are concerned, whether it is the large European OE that we talked about earlier, which is looking at buying from us, they have come to us purely because of our lower carbon footprint. So, what I feel is that this will lead to better quality business coming from car manufacturers, which is a better business than two-wheeler manufacturers, which is a better business than commercial vehicle, which is a better business than tractors. That is the hierarchy. The best, the most stringent, and therefore overall better business is the car manufacturing. So, our target is to increase our car segment from currently 38% of sales to about 50% of sales in the next few years.
Hardik Shah
Understood sir. So that’s very encouraging. And sir one last question is that — so basically what would be your repayment plan for the short-term borrowings? As it had kind of increased in the last few quarters?
Sanjeev Singla
There is no repayment plan.
Hardik Shah
Okay.
Sanjeev Singla
As cash flows come we pay and as we need money we borrow, because we have a capex plan. We have a INR300 crore odd capex plan ongoing for the existing plants. So, cash is required for it. So that is money coming in. And money when LCs are open for equipment then we will have a borrowing coming in at that point in time.
Hardik Shah
Understood. So, sir, one last small question. So what is the interest rate on it on the short-term borrowings?
Sanjeev Singla
7.5%, around that.
Hardik Shah
Fair enough, sir. Yeah. That was the last question from my side. Thank you so much, sir.
Operator
Thank you, sir. [Operator Instructions] The next question is from the line of Adit Shah from Meteor [Phonetic] Wealth Management. Please go ahead.
Adit Shah
Hello, sir. Sir, I just wanted to know is there any update on the — any current or upcoming capacity expansion from the company.
Sachit Jain
So we said that our plant capacity was 285,000 tonnes which we have tested. So we are now in a position to make 285,000 tonnes of billets. As far as rolled production is concerned, the rolling mill expansion is in place, and by August we should be ready. Let’s add one more month of stabilization. The second half of next year, our capacity will be on track, which is 300,000 tonnes of billet input, which means 270,000 tonnes of rolled product. So, all this is — this will be in place by September of next year. Then we have said that we will target to reach towards 300,000 tonnes of steel making, which can then be fed entirely into our rolling mill. But 285,000 tonnes which was our capacity has been tested. And now we don’t sit still, so we try for the next level of 300,000 tonnes.
Adit Shah
Okay, sir. And one last question, as if…
Sachit Jain
Sorry, I am repeating, let’s not be misunderstood, we will be trying to reach 300,000 tonnes.
Adit Shah
Trying? Okay, sir. Okay. That’s why August is like [Speech Overlap]?
Sachit Jain
Yeah.
Adit Shah
Noted. And one last question, sir, like what is the company strategy for securing raw material supplies, especially given in these volatile prices for critical inputs like iron ore and scrap?
Sachit Jain
So we don’t buy any iron ore, we buy scrap. And scrap is, we have a long-term arrangement with one of the shredded scrap producers. And other areas, as this circular economy becomes more and more prominent, and as we are learning from OEs, this is what they are moving towards, we should be able to secure scrap directly from the OEs. But this is something that is being talked about, nothing concrete on the ground. Further, we are looking at the possibility of having some strategic investments in some scrapping companies because scrapping companies’ plants are coming up across the country.
So, we are examining any such opportunity of doing that, taking a minority stake. So, we don’t intend to get into that business ourselves, but a minority stake if it comes up is something that we will very happily — very positively look at.
Adit Shah
All right, sir, and just one generic question…
Sachit Jain
But scrap availability is not a problem.
Adit Shah
Okay. And just one last general question, sir, like how do you see the industry going forward for the next five years?
Sachit Jain
I think the industry will move more and more towards companies like us because of carbon footprint and green steel and pressure from the government to use more recycled materials. So as of now, I think compared to all our competitors, we are by far the best placed in terms of lower carbon footprint and the necessary approvals in place. So having both these factors and with the Japanese collaboration and the reputation for quality and reliability that we have, so those things give us an edge. So I’m focusing constantly on seeing how we can continuously increase our car — four-wheeler business, so the car business, that’s what we are targeting.
Adit Shah
Thank you. All right. So that was very helpful.
Sachit Jain
[Speech Overlap] Yeah.
Adit Shah
Yes, sir. Thank you.
Operator
Thank you, sir. The next question is from the line of Radha from B&K Securities. Please go ahead.
Radha Agarwalla
Hi sir. Thank you again for this opportunity. Sir, my first question was in the next two years we are expecting a single-digit volume growth and this is primarily because of the capacity constraints that we have. So I was wondering that why are we doing growth capex in a slow manner? So in future, for growth capex or for fast tracking the current capex plan, do we need to take approvals from our Japanese partners or do we have the independence to make such decisions by ourselves?
Sachit Jain
So, first of all, we don’t need approvals from any — from our partners. But look at it this way, when you have the world’s arguably in my opinion, the world’s best company in a business, would you not want their full involvement and full participation and full input into the whole thing? So they are fully onboard and their whole process of discussing what products to make and so on. So this is one part, so they are fully onboard.
The second part is that this is not a business where you can expand in a modular manner. The new plant will suddenly come up with a capacity of 350,000 tonnes. We have to be very careful and we — so when we are seeing the trends, as this approval from this OE has happened, this gives us a lot of confidence. As this trend towards green steel is gaining stream, as this approval from the European OE comes through, which is at the final stages, but as it comes through, as this circular economy becomes a bigger and bigger concept, and as the government comes out with clear regulations of carbon trading, so all these things are very positive factors which are supporting our growth, and which will enable us to take this decision. So, as I said, planning is going on. So — as and I have already said that next year we should be ready to announce. You can’t go faster than that.
Radha Agarwalla
Okay, sir. Just continuing with this question…
Sachit Jain
In the existing plant, we are continuously increasing our capacity by debottlenecking, by taking trials and testing. So, just a few months back I said we have tested a capacity of 250,000, then we test [Phonetic] 265,000, and today I am announcing that we have tested 285,000. So, we are gradually increasing our capacity.
Radha Agarwalla
Understood sir. Sir, just continuing the test, so for supply to Aichi Group, I understand that we need Aichi approvals. However, for supplying to non-Aichi customers, do we also need their approval? So I just wanted to understand, as the only investment partner and customers [Speech Overlap]
Sachit Jain
We don’t need any approvals — no, we don’t need any approvals from them. We are selling to all customers, including Hyundai, which is a Korean company, and also all Indian OEs and to other Japanese OEs in India. And I’ve already said that we are at advanced stages with the European OE for direct, for supply of steel to them, for a very specialized project. So all these discussions are going on. So they are fine, because everybody wants this company to grow and become stronger.
Radha Agarwalla
Understood sir. Thanks, and all the best to you.
Operator
Thank you, ma’am. The next question is from the line of Sana Mehta an Individual Investor. Please go ahead.
Sana Mehta
Hello. Good afternoon, sir.
Sachit Jain
Yes. Good afternoon.
Sana Mehta
Sir, my first question is, despite a decrease in steel prices, the cost of raw materials per tonne has gone up in comparison to the previous quarter. So could you explain on that, please?
Sachit Jain
Those factors keep changing here and there. There are also inventory valuation losses because the prices have come down. So those are — so any specific questions, please direct to our CFO as an e-mail separately.
Sana Mehta
Sure, sir.
Sachit Jain
Normally, we don’t answer such questions because there is a mix which changes also, it’s not a sort of standard mix which is constant and various components of raw material, the prices are different. So sometimes prices may go up of raw material and other prices may — other costs may come down. So it’s a very complicated and complex factor. It’s not just one raw material leading to one particular thing.
Sana Mehta
Okay. Sir, and the other question is, what is the revenue split between bright bars and rolling mills?
Sachit Jain
Bright bar is roughly about 20% of our total sales.
Sana Mehta
Okay, sir, noted. Thank you, sir.
Sachit Jain
And it’s rough because the figures keep changing depending on which particular customer orders have come through and so on. So that’s a rough idea.
Sana Mehta
Okay, sir. Okay.
Operator
Thank you, ma’am. The next question is from the line of Aniket an Individual Investor. Please go ahead.
Unidentified Participant
Hello, sir.
Sachit Jain
Yes.
Unidentified Participant
Thank you for the opportunity. I have a few questions. So, sir, just wanted to understand, can we throw some light on this — the activity that we are doing with the solar panel installation?
Sachit Jain
So we have a joint venture because under the government policy of a group captive power plant, so we own 26% in this power company which is. And the implementer is a company called Amarenco from France. They own 74% of the company and they are implementing a project which will be about 55 megawatts. They have assured us that by March of next year, hopefully we will get, the plant will be commissioned and we’ll be able to get solar power which will be roughly 45% of our total power consumption.
Unidentified Participant
Okay, okay. And sir, by then will it start having a positive impact on our — controlling our cost?
Sachit Jain
So if it gets commissioned by March, from April we will start getting benefits.
Unidentified Participant
Okay. Okay. Okay.
Sachit Jain
So as there is no, there is no stabilizing period in this, so it’s on/off. Either you’re getting a benefit, the moment it’s commissioned from next day we start getting the benefit.
Unidentified Participant
And what is the contribution in terms of revenue from domestic and exports?
Sachit Jain
Our Exports are roughly 5% to 7%. It varies, but our target is to eventually move to 20%. Currently, because of Chinese dumping, the prices are low, so not many people are wanting to buy more from India. And Japanese currency is also weaker, so the cost advantage in buying from India is not as much, but so gradually, slowly, we are progressing and increasing our exports into Southeast Asia primarily.
Unidentified Participant
Okay. Okay. And sir, how do you…
Sachit Jain
And — yeah, go ahead.
Unidentified Participant
Yeah. Yeah. Go ahead. Go ahead, sir. Sorry.
Sachit Jain
Go ahead, please.
Unidentified Participant
Yeah. So sir, how do you plan to expand your reach in the coming years, especially with the plans of this new capacity?
Sachit Jain
So one, we will then make deeper inroads in the four-wheeler asset from 38% we want to move to 50%. There would be growth in the Indian economy. The expectation is that the automobile industry itself is going to become much larger. In fact, Maruti Suzuki plans to double its capacity to 4 million cars per year, 3 million for the domestic market, and 1 million for exports. That is what I think I’ve heard from their people. So with the increase in Maruti Suzuki, with the increase in the two-wheeler companies and four-wheeler commercial vehicles will eventually come back. And then exports of auto components from India because of [Indecipherable] coming in, there are massive opportunities.
Then you look at Southeast Asia with this new plant coming up, the limitations of our existing plant will go away, which means that the quality levels will improve further from the current levels. We’ll be able to make more stringent quality than what we are able to make today. And which will mean that there should be bigger export opportunities in Southeast Asia. And eventually, as Africa opens up for Toyota and other companies, those possibilities of making components in India, people would make and export to Africa, those opportunities will open up.
So — because new plant by the time it comes up it will be five years from now. So we are talking about the market scenario is going to be way bigger, Indian economy is going to be way bigger. So there will be many opportunities. We’ll also look at other, other segments like railway. So, there are other segments to start examining.
Unidentified Participant
Okay. Okay. Got it. Got it. And sir, one last question…
Sachit Jain
Again those are all — sorry, again, let me repeat, those all are things that you’ll examine, we’ll study, and so on. So no major commitments at this stage because this is five, 10 years in the future.
Unidentified Participant
Correct. Correct. Correct, sir. Sir, one last question, are there any government subsidies or incentives being leveraged for this solar panel installation?
Sachit Jain
Not to my knowledge.
Unidentified Participant
Okay. Okay. Okay, sir. Thank you so much. This is from my side.
Operator
Thank you, sir. As there are no further questions from the participants, I now hand the conference over to Mr. Sachit Jain for closing comments.
Sachit Jain
So, ladies and gentlemen, thank you again for the interest you’ve shown in the company. I am repeating that currently, the market conditions are not that bright and we are coping as best as we can. And the hope is, as all of you know, with Trump coming in, hopefully, if the war stops and the mood starts changing next year sometime we will see a much brighter situation. And we are ready for that, in terms of the capacity expansion we are putting in place. So, we will be ready for any such requirement as it comes up.
And I remain optimistic about the medium and long-term future. The current situation looks, as all of you know, the auto industry is currently not too great. So I remain optimistic as always. And we should come up in the next six months, we will come up with a more concrete announcement about our new plant.
Thank you so much for being here today.
Operator
[Operator Closing Remarks].