Vardhman Special Steels Limited (VSSL) Q2 FY23 Earnings Concall Transcript

Vardhman Special Steels Limited (NSE:VSSL) Q2 FY23 Earnings Concall dated Nov. 02, 2022

Corporate Participants:

Sachit Jain — Vice Chairman

Sanjeev Singla — Chief Financial Officer

Analysts:

Bhavesh Chauhan — IDBI Capital — Analyst

Rithwik Sheth — One Up Financial — Analyst

Nilesh Doshi — Green Lantern Capital — Analyst

Rajiv Satya — Individual Investor — Analyst

Vishal Jain — Quasar Capital — Analyst

Sachit Kapoor — Individual Investor — Analyst

Aditya Khandelwal — SIMPL — Analyst

Rowan Prama — Individual Investor — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen. I’m Felcia, moderator for the conference call. Welcome to Vardhman Special Steel Limited Q2 FY ’23 Earnings Conference Call. We have with us today Mr. Sachit Jain, Vice Chairman; and Mr. Sanjeev Singla, CFO. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expirations of the company as on the date of this call. These statements are not guarantees of future performance and involve risk and uncertainties that are difficult to predict. [Operator Instructions] Please note this conference call is recorded.

I would now like to hand over the floor to Mr. Sachit Jain. Thank you, and over to you, sir.

Sachit Jain — Vice Chairman

Thank you. Good afternoon, ladies and gentlemen. Thank you once again for showing your interest in our company, along with me in my call, Sanjeev Singla, our CFO. Also, Rajendar Rewari is on the call. We had kind of [Indecipherable] Investor Relations company. We had an interesting year so far, and the second quarter has also been equally interesting and challenging. As we shared with you when the year began, at this time, it’s clearly time its prices commodities fluctuating like nobody’s business. We set all kind of records in terms of price rises and price falls in raw materials. And as a result of that volatility, it was difficult to set the prices in Q1 and Q2. In Q1, we got a price increase much less than what was legitimate and what is expected by us. And there was a trend for a price reduction after that. And with great difficulty we settled through that price.

So Q2 prices were lower than Q1 whereas costs were not much lower, and therefore, operating margins came down in Q2. However, we got reprotection from a past government incentive with came through of INR9.4 crores which is GST refund. And that has been accounted. This is GST refund up to the year ’21. For the year ’21, ’22, we still haven’t got the approval that has not been accounted, and also the GST refunds which has relevance for this year have not been accounted. Of course, this is — income is accrued, the cash will come in, in due course when the government sanctions ease on the cash. Apart from that, volumes have been good. We are on track to meet our revised target of 195,000 tons for the year. We might even try to see if we can exceed this figure and touch 200,000 tons. But anyway, as of now, our target is in a 195,000 stage.

I will leave Sanjeev Singla, our CFO, to take you through some of the financials. And then I’m available for Q&A.

Sanjeev Singla — Chief Financial Officer

Yes. Good afternoon, everybody. So ladies and gentlemen, we are also joined now by our Executive Director and CEO, Mr. Rewari. He has just joined the call now. Yes, Singla, all yours. (Technical Issue).

Operator

The participants, kindly stay connected while we connect you to the management team back on the call.

Sachit Jain — Vice Chairman

Am I audible?

Operator

Yes, sir. Please go ahead.

Sachit Jain — Vice Chairman

Okay, right. So we just invited Mr. Rewari, who made a thunderous entrance and disconnected the call. So our ED and CEO. Will you please welcome the — meet the investing community who are showing an interest in the company.

Sanjeev Singla — Chief Financial Officer

Thank you very much, Jain Sahab. Nice to be in the call.

Sachit Jain — Vice Chairman

Yes. Singla please take them through the financials, and then I’m there to take — answer your questions.

Sanjeev Singla — Chief Financial Officer

Thank you, sir. Good afternoon, everybody. During the second quarter, our volume stands at 60,961, an earnings 43,283 tons in the same quarter last year. Year-on-year increased to 17.74%. Revenue from operations stands at INR443 crores. As against INR335 crores in the same quarter last year, we’ve seen a growth of 42%, primarily due to increase in volume and also because of the price increase, which we received in the second half last year and price increase as seen in the current first half. Our other income, there is an increase. As Mr. Jain has already said, we have accounted for INR9.4 crores GST return under the Industrial [Indecipherable] of our state government. And this benefit is for 1.5 years, and for 1 more year, it is pending for approval where the same will also be accounted once we will get factory approvals from the competent authorities.

As a result, our EBITDA, including other income for the quarter stands at INR49 crores as against INR48.55 crores, we are seeing marginal increase of 1%. EBITDA per ton is INR9,600 And quarter 2 PAT stands at INR28.01 crores as against INR24 crores in the same quarter last year. There is an increase of 15% mainly because in the current year, we have switched over to the new [Indecipherable] the expecting rate of tax is 25% as against 35% in the old SMEs.

So that’s all on the financial performance, and I now set for question and answers.

Sachit Jain — Vice Chairman

And before the question is coming, again, EBITDA to capital employed is about 20%, which is what we have said that our target is that can consistently meet the figure of about 20% EBITDA on capital plan. And [Indecipherable] 25% on a sustainable basis by the trade price, at least to get track to achieve those milestones. But now over to you all, and we can start the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Bhavesh Chauhan from IDBI Capital. Please go ahead.

Bhavesh Chauhan — IDBI Capital — Analyst

Hi sir, my question is with regards to the strategic alliance with Aichi Steel that you have done. If you could share what is the kind of offtake has Toyota assured of any offtake that really happened from this? And what is the kind of steam that we may be making? And what is the market potential for that kind of stream going forward?

Sachit Jain — Vice Chairman

So thank you Bhavesh for asking the question. I think there is echo coming. (Technical Issue)

Operator

Ladies and gentlemen, kindly stay connected while we connect the management team back on the call.

Sachit Jain — Vice Chairman

Yes. So the first 3 years of this agreement with Aichi have been completed. And we have signed the agreement again for the next 3 years. And with Toyota, the approvals have started coming in, and part production has already started for some parts and mass production has started for some part. So there is a series of parts which need to get approved, and this is in sequence. Again, that is the echo coming. Am I — is it disturbing too much or should I continue like this?

Bhavesh Chauhan — IDBI Capital — Analyst

Not disturbing, please continue.

Sachit Jain — Vice Chairman

Okay. Okay. This year, we should do about 3,000 to 4,000 tons. And in the next 3 years, this figure should rise to about 30,000 tons. And beyond that, the potential is huge because eventually, Southeast Asia business Toyota, which is coming from Aichi Steel, our partners. Large part of that is likely to shift to India. So the potential is huge, it depends on our ability to submit the requirements. And Toyota not give any assurances and no other company gives assurances. So they give ideas. They give tentative possibilities of quality, and it is for the companies to work towards achieving goals. Let me say there’s reasonable confidence of achieving those numbers. So in addition to these numbers, there are other Japanese customers who are coming into us because of Aichi, not through Aichi, but because we know Aichi is here and therefore, quality levels we reached the Toyota standards and therefore, other Japanese customers in Southeast Asia are also gravitating towards us.

So from a business point of view, we are expecting a shortfall in capacity in the next two to three years.

Operator

Thank you. And the next question comes from Rithwik Sheth from One Up Financial. Please go ahead.

Rithwik Sheth — One Up Financial — Analyst

Yes. I have few questions. Firstly, sir, this incentive that we have received from the government, how long and what would be the quantum which would be pending? You mentioned that GST spending for another year. And is there any electricity benefits or any other benefits which we are expecting?

Sachit Jain — Vice Chairman

Yes. So this benefit is going to last for about 7 years. And we are expecting about 7 — roughly INR7 crores, INR7.5 crores for 1 year, for previous year, which will one only when there can bee approval will we get it. And going ahead, it will be roughly about INR8 crores to INR10 crores per year.

Rithwik Sheth — One Up Financial — Analyst

Okay. Okay. So this cause…

Sachit Jain — Vice Chairman

So this GST. On electricity duty we got benefits last year of the spending, plus annually, we are already getting the benefits for electricity, which are part of our P&L. This has been reported separately as a — because it’s a prior year income, and come in as a lump sum therefore it’s very important.

Rithwik Sheth — One Up Financial — Analyst

So any figure for year for the electricity benefit?

Sanjeev Singla — Chief Financial Officer

It’s also about INR8 crores to INR10 crores per year, we will be getting.

Sachit Jain — Vice Chairman

But that is already accounted in every quarter results.

Rithwik Sheth — One Up Financial — Analyst

Yes. That is also reported in other income, right?

Sanjeev Singla — Chief Financial Officer

Correct.

Rithwik Sheth — One Up Financial — Analyst

My next question is on the scrap prices, given — reading that because of lower production in the West material is coming into India, so has that benefited us in terms of lower scrap prices, if you can throw some light and what would be the scrap price currently versus the last quarter, average?

Sachit Jain — Vice Chairman

So prices are headed a little downwards, but domestic prices are higher than international prices, and we were largely relying on domestic scrap. But as the international prices are staying at a lower level, we have increased the purchase of imported scrap. And — so the prices keep changing, there is no point in talking about a number at this point. But currently, around 400 — slightly fluctuating between $440 and $460 per ton landed in Nhava Sheva.

Rithwik Sheth — One Up Financial — Analyst

Okay. Okay. So what would be the premium of domestic scrap pricing over international?

Sachit Jain — Vice Chairman

Varies, but currently, it’s between INR2,000 to INR4,000. It varies between that. So it’s a constant dynamic taking a view. In my time in the steel business. I have not seen a situation where international pricing have remained that much lower than domestic prices. So this is an unusual kind of situation. And this arbitrage, which is going on the other way may not continue for long, but these are unusual times, so we cannot say what is driving the prices.

Rithwik Sheth — One Up Financial — Analyst

Directionally current quarter’s scrap prices would be lower than Q2 averages, right? I’m not — directionally, I’m trying to understand.

Sachit Jain — Vice Chairman

It may be a bit lower. But then also depends on what is the price settlement from October. Because the OEs are asking for a price reduction, whereas we are not prepared to give any price reduction at this point in time.

Rithwik Sheth — One Up Financial — Analyst

Okay. What is the quantum that they are looking for?

Sachit Jain — Vice Chairman

Those are negotiating numbers, I can’t share those numbers.

Rithwik Sheth — One Up Financial — Analyst

And sir, my next question is on the greenfield project you have been mentioning repeatedly. I wanted to — is there any update on the [Indecipherable].

Sachit Jain — Vice Chairman

No. At this point, there is no update. We are clear as the Indian site of VSS that we need the capacity as soon as possible. And our partners, Aichi, are also agreeable that we need this capacity. The question only is what is the trigger start working on that. So we’re instructing that, and hopefully, the next few months will have clarity on that.

Rithwik Sheth — One Up Financial — Analyst

Okay. Sure. Sure. And sir, you mentioned that 3,000 to 4,000 tons of export we will be doing to Aichi customers. So that teams most of the product approval has come through, would that be a reasonable understanding?

Sachit Jain — Vice Chairman

No. That would be incorrect. As I said, the product approvals are all in process. There are several products to be approved for. And the approvals are coming in — every quarter, we’re getting some more approvals. Because it’s a slower process of sending material, making parts, testing those parts and getting those approvals. And this what is happening is at super-fast speed. So no other Indian company can replicate what we are able to get. So what — the approvals we’re getting from Toyota are at super-fast speed. But super-fast also takes time because automobile and material change is a massive safety issue. So dock testing has to be done to absolutely everyone has to make sure that nothing possibly can go wrong.

Rithwik Sheth — One Up Financial — Analyst

And sir, just a follow-up on the incentive bit. Is this incentive amount fixed with [Indecipherable] irrespective of the electricity prices?

Sachit Jain — Vice Chairman

This is electricity duty. So if the prices increase and the incentive will also increase, but then the cost is increasing. So this has got nothing to — and this figure will change depending on as we increase our production and our consumption goes up, this amount will go up. So this is a percentage of the power — basically, in effect, it is a reduction in the power tariffs.

Rithwik Sheth — One Up Financial — Analyst

Okay. And would you like to share what would be the mechanism — like what is a…

Sachit Jain — Vice Chairman

Depends on the bill, it gets adjusted in the bill every month.

Rithwik Sheth — One Up Financial — Analyst

It gets adjusted in the bill. Okay.

Sachit Jain — Vice Chairman

Yes.

Rithwik Sheth — One Up Financial — Analyst

So as we use more power will get a higher refund, something like…

Sachit Jain — Vice Chairman

There’s no refund. We pay less. Electricity duty, there is no refund. We pay less to the government. And the GST part, we get a refund. So there are 2 legs to this incentive.

Rithwik Sheth — One Up Financial — Analyst

Right. So just wanted to understand on the electricity. So if the electricity bill is INR100, we would be getting a percentage of reduction on the expense and the entire expense will it be in the P&L line item in the expense side, and the lower…

Sachit Jain — Vice Chairman

The incentive part comes in [Indecipherable]

Rithwik Sheth — One Up Financial — Analyst

[Indecipherable] income.

Sachit Jain — Vice Chairman

Correct. Correct.

Operator

And the next question is from Nilesh Doshi from Green Lantern Capital.

Nilesh Doshi — Green Lantern Capital — Analyst

First is, you said about new products development. You mentioned that it’s happening at a very good speed. Technically, what — these are different grades of steel which we are developing for them, or it is — how do I understand it?

Sachit Jain — Vice Chairman

These are unique products to Toyota. It may be the same grade, but the quality specs would be different in some cases. In some cases, they may be unique grades also. But mostly, it is existing grade but much tighter quality specifications.

Nilesh Doshi — Green Lantern Capital — Analyst

So in terms of manufacturing process…

Sachit Jain — Vice Chairman

This product cannot be sold to anybody else.

Nilesh Doshi — Green Lantern Capital — Analyst

But does it call for changes in the manufacturing process or something?

Sachit Jain — Vice Chairman

It does. It does.

Nilesh Doshi — Green Lantern Capital — Analyst

I see. Okay. Second is, what are you really observing on a global framework that structurally why these companies are looking at India after — I mean many years, they have always remained sourcing within their own country or maybe…

Sachit Jain — Vice Chairman

Not really. That would be incorrect to say. At least I know our partner, Aichi, had been counting India since 2006. I think the first contact with our company was made in around 2006 or ’07. So…

Nilesh Doshi — Green Lantern Capital — Analyst

Is it just taking like a decade to even develop more and more products, right?

Sachit Jain — Vice Chairman

You see the point is that to find the right thought process, to find the right partnership and to operate in India is very difficult. So to just give you an example, there are 3 special steel companies in Japan, Daido, Aichi and Sanyo. Aichi was the first off the block to look for a partner. They couldn’t find the right partner. Daido partnered with Sunflag in 2011 or 2012. And Sanyo partnered in Mahindra Ugine or MUSCO, and eventually have taken over MUSCO, but they are all having their own difficulties in operating in India. So India sadly is a difficult market for many of the foreigner who work here. So Aichi also partnered with another company called Usha Martin in 2014, they failed in that company. So after 4 years of struggling with Usha Martin they finally dropped out of that agreement, and started with us in 2019.

So there always has been intention from them to produce in India and source from India. And I think somewhere Indian entrepreneurs and Indian organizations have to understand, to meet international requirements, we have to change our approach. And they ask for stuff, which many Indians say, why do you need this, this is not required and so on. Bhai, when the customer wants it, you have to give it. So that kind of customer orientation is largely lacking in Indian manufacturing organizations.

Nilesh Doshi — Green Lantern Capital — Analyst

Yes. But with the kind of digital world in which we are and so is the market changing?

Sachit Jain — Vice Chairman

This is not the topic of this discussion. But suffice to say, Vardhman Group — in Vardhman Group, Aichi has found a partner, which is very responsive, which has the same ideology, same philosophy, and they are finding — and so many all customers who come, thanks to Aichi, other customers are coming in, are repeating that.

So we are very hopeful that in the next coming few years, we have — we are going to have massive growth in terms of the requirement of products from us.

Nilesh Doshi — Green Lantern Capital — Analyst

Just one last question, is on the pricing with these OEMs. Like earlier, I remember we used to have yearly pricing, then it moved to 6 months. Now it is probably quarterly. But as the India’s industry is maturing and the kind of volatility we are seeing across in every aspect of life, today, especially last 2 years. Are the industries not maturing towards some kind of formula-based pricing to avoid all these haggling and all?

Sachit Jain — Vice Chairman

People are not talking about it, it is very difficult to get a formula-based pricing because in India, there are 2 routes of steelmaking. There is a blast furnace route and there is alloys — there is electric cast furnace route and the cost structures and movement of these 2 are very different. So very difficult to get a formula based system. Everyone wants that. So we have that with Hyundai. So it is possible for 1 company, but then we are the only supplier in from India in Hyundai. So we have that formula that the other companies — everybody wants it, but it is difficult.

Nilesh Doshi — Green Lantern Capital — Analyst

I see. Because otherwise, I think give us good visibility in terms of margin, margin for [Indecipherable].

Sachit Jain — Vice Chairman

I agree, that makes sense, unfortunately that is difficult.

Operator

And the next question is from Rajiv Satya from [Indecipherable] Financial.

Rajiv Satya — Individual Investor — Analyst

Sir, what is our wallet share with most of our — with major clients?

Sachit Jain — Vice Chairman

Rajiv it is different of different customers, there are — and we will not like to share for any customer, what is our share of their business. But we have up to 70% to 80% in some cases, and we would be 15% to 20% in some cases. But very rarely were we below 20% for any customer.

And in some customers,again depends on — 1 customer, they have — we’ve [Indecipherable] a few OEs. But since we have a more sophisticated quality supplier and more expensive steel, same customers for a particular OE may be using even 100% of our materials from us.

Rajiv Satya — Individual Investor — Analyst

So they may be taking materials from us?

Sachit Jain — Vice Chairman

From other steel suppliers at keeper prices for some other OEs which are less quality conscious of a part, which are less stringent in quality requirements.

Rajiv Satya — Individual Investor — Analyst

Okay. Got it. And there — I mean, with the clients where we have a lower market share, let’s say, 20%, 30%. Do you think that there is a possibility to increase it?

Sachit Jain — Vice Chairman

Again, we have not just now — because we have — we have a shortage of capacity. We are not trying very hard to increase sales where the customer doesn’t value our product and services. We are going to have a shortage of capacity in next few years. So we are holding on to any further push — aggressive push in marketing.

Rajiv Satya — Individual Investor — Analyst

Okay. On this capacity point, so — it’s clear that [Indecipherable] we will be limited going till 2025 how much can you can you really tell without the greenfield?

Sachit Jain — Vice Chairman

Those are questions because there is a big assumption out here that there is no plan B between fully utilizing this capacity and having a greenfield. So that assumption perhaps will not be correct. So we have a plan B and a plan C. We do not intend to allow sales opportunities to slip by. So we’ll see how those plans shape up in the next coming years.

Rajiv Satya — Individual Investor — Analyst

Okay. And for the greenfield plant, how much time will it take and what will be the kind of capacity that we will look towards…

Sachit Jain — Vice Chairman

So again, all that is to discuss with our partners but the way I see it — so it will take roughly 5 years for when we decide.

Rajiv Satya — Individual Investor — Analyst

I just to sort [Indecipherable].

Sachit Jain — Vice Chairman

It will take time to figure out where we purchase the land, where we get the environmental approvals, then there is service project in construction. So it’s between 5 to 6 years. So for the investment horizon of any of you, I think this is beyond the investment horizon of any of you.

Rajiv Satya — Individual Investor — Analyst

And when it comes to agreements with the renewal of agreeing in the Aichi. So is it as per our expectations or maybe some change from the previous agreement?

Sachit Jain — Vice Chairman

No. The terms have changed from the previous agreement, but this is all as per our expectation and understanding a full acceptance because I still believe the fees they are charging us and the kind of value they are getting, we have the better end of the deal. There have been more than fair, and we are getting way beyond what we are paying them as fees.

Rajiv Satya — Individual Investor — Analyst

Sure. Sure. Have you disclosed that stance? Or would you be on disclosing them?

Sachit Jain — Vice Chairman

No. We don’t disclose this term. But some parts will be visible in the annual report when you see the detailed expenditure statement. But we don’t on our — from our side reveal any parts of the agreement.

Rajiv Satya — Individual Investor — Analyst

What are the sustainable margins for our business, be it in EBITDA, EBITDA per ton basis?

Sachit Jain — Vice Chairman

We have said that we believe INR7,000 to INR10,000 EBITDA per ton is a sustainable number. And beyond ’25, we will be targeting the figure of INR10,000 to INR12,000 EBITDA per ton.

Rajiv Satya — Individual Investor — Analyst

And sir, prior to 2020, then were we also operating in the same range or [Indecipherable]…

Sachit Jain — Vice Chairman

Earlier — our figures have been changing upwards — earlier, the first set of guidance we were giving was between INR4,500 to INR6,000. Then we changed it to INR5,000 and INR7,000, then INR6,000 to INR8,000, then INR7,000 to INR9,000 and then INR7,000 to INR10,000.

Rajiv Satya — Individual Investor — Analyst

So what has led to this change of upward movement of margin?

Sachit Jain — Vice Chairman

Constant operational improvement, cost reduction and production increase, and product mix — better product mix. The combination of all factors.

Rajiv Satya — Individual Investor — Analyst

Okay. Sure. And with Aichi we are…

Sachit Jain — Vice Chairman

Shareholders have given me a good salary. So I have to justify my existence. If we’re getting the same INR4,500 to INR6,000, the shareholders would have kicked me out by now.

Rajiv Satya — Individual Investor — Analyst

Okay. Can I ask one or 2 more questions?

Sachit Jain — Vice Chairman

It depends on queue, if there no other in the queue, please ask otherwise come back in the queue.

Operator

And the next question is from Vishal Jain from Quasar Capital. Please go ahead.

Vishal Jain — Quasar Capital — Analyst

My question is related to CapEx, sir. So like you’re increasing the capacity from 200,000 to 250,000 tons with the CapEx of around INR300 crores. So if I calculate that incremental CapEx per ton comes to around INR60,000 crores — INR60,000 per ton. So is my understanding correct? Or am I missing something here sir?

Sachit Jain — Vice Chairman

It is difficult to correlate exactly that’s why several investors are going for environmental approval. There are investments going in for quality. There are past some of the investments are normal CapEx which are replacement CapEx. This is a combination of all factors. And we will be announcing, I think at the next Board meeting — the next quarterly earnings, we’ll announce the next set of CapEx plans. And some of these CapEx plans also have a cost associated with them, so that the payback individually because of that. So it’s very difficult to look at it as a CapEx related to capacity. Yes.

Vishal Jain — Quasar Capital — Analyst

And sir, is it possible to share the CapEx per ton. Like I mean if it is possible so that’s what I’m asking.

Sachit Jain — Vice Chairman

What we are doing?

Vishal Jain — Quasar Capital — Analyst

Yes. Like for incremental CapEx, that will increase from 2% to 2.5%.

Sachit Jain — Vice Chairman

No. I think it doesn’t makes sense something as a figure. So we have reported CapEx we are doing and you can — you have the production increase that have been made. Some of it is going for product mix enhancement, some of it is going for safety. Some of it is going for environment. Some of it going for cost reduction, some of it is going for replacement. The way I would see it is please look at total capital employed and the EBITDA on capital employed, which we have said in our guidance that we will be targeting above 20% EBITDA on capital employed.

Operator

And the next question is from Sachit Kapoor, an individual investor.

Sachit Kapoor — Individual Investor — Analyst

Yes. So just a small clarification. The other income has 2 components. One is the reduction in the power cost because of the power subsidy and other is the GST. And GST component is the one which was getting approved by the government and then being accrued whereas the power will be on a continuous basis depending on our production.

Sachit Jain — Vice Chairman

Correct.

Sachit Kapoor — Individual Investor — Analyst

Okay. And this quarter, there is an approval from the government on GST to the tune of INR9 crores.

Sachit Jain — Vice Chairman

But — which is related to the past period up to March ’21.

So ’21, ’22 is pending because not yet approved, and ’22, ’23’s full amount is not yet approved.

Sachit Kapoor — Individual Investor — Analyst

Okay. So every quarter, we can expect this approval, the profit would be on what — how is this going to be [Indecipherable]

Sachit Jain — Vice Chairman

[Indecipherable] you have to apply to that government, depends on the government to give the approval. So it’s not in our hands.

Sachit Kapoor — Individual Investor — Analyst

Okay. So it’s a new government in — interim government, I think 1 year old. So is that the reason why the process is taking long? Or what was the…

Sachit Jain — Vice Chairman

I would say perhaps this government has become being more efficient in the previous government. And at least clearly what this investment that we made was made in the previous government. And if they had any such intention then they would have delayed this process further. So we have got the approval now of the investments made in the previous government.

Sachit Kapoor — Individual Investor — Analyst

Right. Sir, currently, our capacity is still200,000 tons. And I think what we done for the H1, we are at the optimum utilization level. So out of this quantity produced around — above 100,000. How much is attributed to the Aichi partner?

Sachit Jain — Vice Chairman

Aichi sales is negligible in the first half.

Sachit Kapoor — Individual Investor — Analyst

Okay. So second half, what is the plan?

Sachit Jain — Vice Chairman

I would say 3,000 to 4,000 tons roughly will be the sales which go into Aichi. I have always said — that gradually sales, ’24, ’25 we will notice the sales from Aichi, which are expected to be around 30,000 tons — I mean, 20,000 to 30,000 tons. So ’25, ’26 think of 20,000 tons.

Sachit Kapoor — Individual Investor — Analyst

But that will happen only from when the capacity moves up from 200,000 to 250,000? That increment…

Sachit Jain — Vice Chairman

That capacity will move up well before that.

Sachit Kapoor — Individual Investor — Analyst

Okay. But that is what the — so the incremental capacity will be attributable to the Aichi deliverable.

Sachit Jain — Vice Chairman

Correct.

Sachit Kapoor — Individual Investor — Analyst

Okay. Sir, if we look at the per your raw material basket, if you could give the granular details, what constitutes the crack percentage and the other materials.

Sachit Jain — Vice Chairman

We don’t share that with us because we keep bearing that depending on the price dynamics, availability and so on. But the key raw material inputs that we use, we use a heavy melting scrap. We use shredded scrap, we use pig iron, we use beach iron. We use sponge iron, we use DRI and we use NSTB, which is turning and boring. So we use a mix of all of these.

Sachit Kapoor — Individual Investor — Analyst

Right, sir. And let’s say EAF route electric arc furnace, what component goes of the graphite cost in the total steel making?

Sachit Jain — Vice Chairman

Again, if you have specific costs [Indecipherable]…

Sachit Kapoor — Individual Investor — Analyst

No. I just wanted to understand the cost component percentage. I have no other as you give us details about the variety of scraps and [Indecipherable]

Sachit Jain — Vice Chairman

It’s less than 1%.

Sachit Kapoor — Individual Investor — Analyst

That is the only question I had. And sir, looking into the H2 as you have told that the OEMs are looking for reduction in the finished product cycle because of the reduction in scrap prices. Then what is our visibility in terms of we maintaining this visibility.

Sachit Jain — Vice Chairman

No visibility. No visibility. I’ve already said in the beginning of this year. This year, no forecast are valid.

Sachit Kapoor — Individual Investor — Analyst

Got it, sir. So this EBITDA per ton of INR9,800 will be depending upon the institution, it will shape up. If we cannot plan out a trajectory as per todays understanding.

Sachit Jain — Vice Chairman

The OEs have been not very fair to the steel companies we’ve already seen the steel companies’ results that have come out. Tata Long Products have already declared a loss. JSW’s is in loss. Tata Steel profits are majorly down. So in this scenario, we are a very small company. So we have to understand that our negotiating and bargaining power with the large OEs is very low. And this year, the OEs have not been — and you can see the profits of all these large OEs, we are making very strong profits. And they’re much more — much stronger and bigger than we are. At this stage for us to make any comments as to what will it be, difficult to say.

Sachit Kapoor — Individual Investor — Analyst

Difficult to say. And the line items of other expenses, sir, if you could comment on [Indecipherable]

Operator

[Operator Instructions] And the next is from Aditya Khandelwal from SIMPL.

Aditya Khandelwal — SIMPL — Analyst

I’ve recently started tracking your company, so my questions will be a little bit slow. Sir, when I look at your EBITDA per ton, I’m not including other income. If I see a decrease from around INR8,700 to INR6,800 per ton Q-on-Q. So what are [Indecipherable]?

Sachit Jain — Vice Chairman

So first of all, other income that you’re talking about is part and parcel of our business. So the electricity duty is the cost which has been taking into account as our cost. And yes, the GST refund this year — this quarter is substantial increase, but otherwise, it is lower. But yes, the point suffice it to say, the EBITDA per ton is lower. It is because the OEs are pushed through a price reduction that it will not do. And these supply only in auto industry. So it is all linked to the auto industry.

Aditya Khandelwal — SIMPL — Analyst

So if I wanted to understand how the prices of steel will affect you because steel prices decrease, is it detrimental for our company or…

Sanjeev Singla — Chief Financial Officer

You won’t get a standard answer because all depends on how raw material price movement happens and steel pricing happens. So if raw material prices — steel prices reduce and raw material prices reduce more than steel price reduction, then it’s our advantage.

Aditya Khandelwal — SIMPL — Analyst

And sir the world steel prices [Indecipherable] fixed price, so that will also be a little detrimental to us?

Sachit Jain — Vice Chairman

I’m sorry, can you repeat that question, please?

Aditya Khandelwal — SIMPL — Analyst

So the [Indecipherable] for us.

Sachit Jain — Vice Chairman

See, the fixed cost per ton depends on volume, not on the pricing. So if our volumes gets maintained, that the fixed cost per ton will remain the same. And as you can see, our volumes have been constantly increasing. And therefore, fixed cost per ton has been maintained or reduced.

Aditya Khandelwal — SIMPL — Analyst

Right. And when I look at your complete history, so our gross broke has almost increased by 6x from FY ’11 to FY ’22 while our production volume has increased only 2.5x from 80,000 to 200,000. So just wanted to understand does the company have high requirements on maintenance CapEx. Because our cash flows have been pretty weak.

Sachit Jain — Vice Chairman

No. No. See in the last 10 years, between 2000 and 2010, there was no CapEx made, because this business is in the defunct business of the Group, and there was more investment into this company. After I took charge in 2010, we had been investing continuously. So that has led to increase in capacity as well as modernization as well as replacement CapEx. So the combination of all of these, plus safety was neglected, environment was neglected. So many other investments that we made, which have not been done by the previous management. And management means the operating management because they never met [Indecipherable] the management remains the same, the Group remains the same. So again, the way to look at it is with returns on the total capital employed, which includes the gross bock. So we don’t track gross block. We attract total capital employed, which is net block plus the net current assets. And this reference will continue to be made which are required by the business.

Let me give you an example. A full entity line, which has put up as part of the previous CapEx, it does not increase your production, but that is an essential part of being in business. We fume extraction system, costing us INR14 crores when we put it up in 2014. Zero impact on [Indecipherable], in fact, a negative impact on [Indecipherable] but required for environment management, those investments were not done in earlier.

Operator

Next question comes from Rowan Prama from [Indecipherable] Capital.

Rowan Prama — Individual Investor — Analyst

I’m just trying to understand your reason I was just going through the presentation like you know that as the [Indecipherable] and you are [Indecipherable] towards more [Indecipherable] the [Indecipherable] volume? As you said, like more [Indecipherable] highly business going forward?

Sachit Jain — Vice Chairman

I’m not able to understand your question. Can you be precise about your question. Can you repeat — you want to understand my vision? Our vision is to be the #1 special steel company and be a world-class company, to reach an appropriate size of 800,000 to 1 million tons. And in getting there, we want to be partnered with a global leader which we have succeeded in getting Aichi as our partner. And we want to be in the domestic market as well as in the export market primarily South East Asia. Eventually, we plan to be also perhaps in Europe and Africa over time. We plan to be environmentally conscious. We have, and lowered our carbon footprint.

So the electric arc furnace, where we circulate — where we use scrap, and we are part circular economy, our carbon footprint is way lower than any of our competitors. As ESG becomes a bigger and bigger part of investment — which drive investments and as customers are driving carbon footprint, we as a company will stand to get tremendous advantage from that. That’s on the overall vision. Does that answer your question?

Rowan Prama — Individual Investor — Analyst

Yes, I have 1 more question.

Sachit Jain — Vice Chairman

Please go ahead.

Rowan Prama — Individual Investor — Analyst

As you said, there is volume to get in an industry-wide level, there are, as you said, there are a [Indecipherable] But for [Indecipherable] They are better positioned or we are a [Indecipherable].

Sachit Jain — Vice Chairman

There is no such thing as who is better and who is not better. Every company has their own advantages and disadvantages, and we are positioned well. And we don’t compare us to other company. We look at our own performance and how to continuously improve and sustain our performance.

Operator

[Operator Instructions] We have a follow-up question from Rajiv Satya from [Indecipherable] Financial.

Rajiv Satya — Individual Investor — Analyst

[Indecipherable] for better margin return?

Sanjeev Singla — Chief Financial Officer

Again, that is — those are internal matters of the company. Suffice it to say since the investors, there on an arm–length basis. If it makes sense for us to do business with them, we will do business with them. And we’ve already said that by ’24, ’25 or ’25, ’26, we are targeting to up our EBITDA per ton levels company-wide to INR10,000 to INR12,000 is for you to draw your own conclusions.

Rajiv Satya — Individual Investor — Analyst

Sure sir, really helpful. And last point, the data which will begin in 2025 will it be hybrid or electric vehicles?

Sachit Jain — Vice Chairman

Sorry, will it be hybrid or — what were you saying?

Rajiv Satya — Individual Investor — Analyst

Electric vehicle.

Sachit Jain — Vice Chairman

See, we don’t disclose what each of our customers is doing. We have already started reporting our percentage of sales which are going to the EV sector. Last year, we sold 6% of our steel to the EV sector, which is higher than the percentage of EV vehicles sales to total vehicle sales in India. So we are well positioned, well poised for taking a disproportionate share of the increase in EVs. At the same time, Toyota, our partners, are global leaders in hybrid. So we will be supplying eventually with the hybrid sector also. We are developing steel for the EV sector and also for the combustion engine also. So all areas we will be supplying steel.

Rajiv Satya — Individual Investor — Analyst

Understood.

Sachit Jain — Vice Chairman

Please understand that the as a steel supplier these things are irrelevant. The key is — the future trend is to work cleaner, stronger — or stronger, lighter steel, which means to move towards clean steel technology. And again, as our partner, Aichi, as suppliers to Toyota, we have the technology to make any of these fees. So we have through Aichi access to all know-how for steel making for the automotive sector.

Operator

And the next question is from [Indecipherable].

Rajiv Satya — Individual Investor — Analyst

Yes, as one of the [Indecipherable] as you were mentioning. [Indecipherable] So Aichi somewhere in ’25, ’26, it will be about 2500 tons to 3500 tons at that point of time, you will have proceeds from [Indecipherable] Sir, what will be [Indecipherable].

Sachit Jain — Vice Chairman

It’s a tiny percentage of what was their requirements.

Rajiv Satya — Individual Investor — Analyst

In the bigger picture, where do you see our sales capacity that [Indecipherable] feel like to 800,000 tons to 10,00,000 tons per annum [Indecipherable] So what [Indecipherable] And just I’m unable to [Indecipherable] now.

Sachit Jain — Vice Chairman

See, just now, it’s a slow process to increase the gain we trust and to get into any auto company. Please understand once Toyota approval comes, then the ability to enter into any Japanese OE becomes very high. So there is benefits of selling to Toyota, and also benefits to be able to see other Japanese OEs. And a large chunk of our 800,000 tons to 1 million tons that we hope we producing in the next 10 years, so a large chunk of it would be going to our overseas business.

Operator

There are no further questions. Now I hand over the floor to management for closing comments.

Sachit Jain — Vice Chairman

Ladies and gentlemen, thank you so much for your interest in the company. As a closing comment, I will like to say that with Aichi, our partnership is going strong. As we speak, their President of steel division is here with us. He was there in the Board meeting, even as we speak to you, he is currently in the plant. And in the next few days, we have a lot of discussions we have with them, also I will be visiting Japan in December to have further discussions and meet all the customers. The advantage is, thanks to Aichi, all doors are open to us which will not open to many other steel companies. So that is a huge advantage and it’s up to us how we take advantage of that opportunity. I believe that the company are very well poised to take good advantage of that opportunity. Thank you so much for your interest in our company.

[Operator Closing Remarks]