Vardhman Special Steels Ltd Management Discussions

Economic Overview

Global Economy

The global economy grew 3.4% in calendar year 2025, marginally ahead of the 3.3% recorded in 2024. The outcome surpassed expectations that had been held throughout much of the year. Private sector adaptability, accelerating investment in artificial intelligence, supportive fiscal conditions and the gradual easing of monetary policy across major jurisdictions combined to sustain the momentum.

Trade policy was the defining variable. Elevated tariff barriers introduced by the United States in early 2025 reshaped trading patterns and triggered aggressive front-loading of imports across major economies. Subsequent bilateral negotiations tempered some of the more extreme measures. The overall environment remained volatile. Trade policy uncertainty stayed at historically elevated levels through the year.

Global headline inflation declined to an estimated 4.1%, down from 5.8% in the prior year. Inflation in advanced economies moderated to 2.5%, converging closer to central bank targets. Crude oil prices fell 14.4% year- on-year to approximately US$67.74 per barrel, reflecting moderate demand and ample supply. Financial conditions improved steadily, supported by receding inflation expectations and an accommodative pivot by major central banks.

World trade volumes grew by an estimated 5.1%, well above the pace of output growth. The surge was driven largely by the front-loading of shipments ahead of anticipated tariffs and rising demand for AI-related goods.

Key risks & Uncertainties

The global economy delivered a steady aggregate performance in 2025. The balance of risks, however, remained tilted firmly to the downside.

The escalation of conflict in the Middle East in early 2026 has introduced the most consequential new risk to the outlook. The disruption to production facilities and the closure of the Strait of Hormuz have driven energy prices sharply higher. Commodityimporting emerging markets face a disproportionate burden through higher energy and food import bills and currency depreciation.

Additional downside risks persist. A reassessment of AI-driven productivity gains could trigger investment pullbacks and financial market corrections.

Elevated public debt and persistent fiscal deficits in the United States, China, France and Brazil exert latent upward pressure on long-term interest rates, narrowing policy space for future shocks.

On the upside, faster AI adoption, geopolitical de-escalation and renewed multilateral trade cooperation could deliver growth impulses beyond the baseline.

Outlook

The IMFs April 2026 World Economic Outlook projects global growth at 3.1% for 2026 and 3.2% for 2027, assuming a limited conflict in the Middle East. Prior to the outbreak of hostilities, projections indicated 3.4% growth in 2026.

The conflict has shaved approximately 0.3 percentage points from near-term forecasts. Global headline inflation is expected to rise to 4.4% in 2026, driven by elevated energy and food prices, before declining to 3.7% in 2027. The pressures will be most acute in commodity-importing emerging markets and low-income economies.

Sustaining moderate expansion will require disciplined fiscal management, continued progress on price stability, deeper structural reforms and stronger multilateral cooperation to contain the fragmenting pressures on the global trading system.

Key external pressures and their bearing on the Company

The closure of the Strait of Hormuz, a critical artery for global trade, has disrupted supply chains worldwide.

Impact on Vardhman Special Steel

Raw material sourcing is exposed, as in India a sizeable volume of scrap is imported. Logistics costs also rise.

The military conflict in the Middle East has depreciated the rupee, raising the cost of imports.

Impact on Vardhman Special Steel

Raw material cost and import of machinery became costlier.

Near-term uncertainty across the globe will weigh on demand for products.

Impact on Vardhman Special Steel

Demand for products may soften in the near to medium term.

SOURCE:

https://www.imf.org/en/publications/weo/issues/2026/01/19/world-economic-outlook-update-january-2026

Indian Economy

Indias economy grew 7.7% in FY26, accelerating from 7.1% in the prior year. The fourth quarter expanded 7.8%. India remained the fastest-growing major economy.

Private final consumption expenditure grew 7%, its share of GDP rising to 61.5%, the highest since FY12. Gross fixed capital formation grew 8.2%, sustaining a 30% share of GDP for the third consecutive year. Manufacturing expanded 10.7%, reflecting deepening industrial activity. Trade, transport, hotels and communication services accelerated to 11%. Agriculture grew 3.2%, supporting rural incomes and consumption recovery.

Headline CPI inflation averaged a historic low of 1.7% during April to December FY26, the lowest in the current CPI series. The RBI cut the repo rate by a cumulative 125 basis points since February 2025, bringing it to 5.25%. Lower inflation and lower interest rates improved affordability, lifted real purchasing power and supported demand across automotive and consumer segments.

The Central Government contained the fiscal deficit at 4.4% of GDP. Capital expenditure remained elevated at approximately 4% of GDP, sustaining the infrastructure pipeline that underpins steel demand.

The landmark GST 2.0 rationalisation, effective September 22, 2025, simplified the tax structure to two standard rates of 5% and 18%, with a 40% demerit rate. The reform reduced GST on small cars and two-wheelers from 28% to 18%, on tractors from 12% to 5% and rationalised rates on buses, trucks and auto components. The impact on automotive demand was immediate and substantial, with H2 passenger vehicle sales rising 16.7% after a 1.4% decline in H1.

Outlook

The Economic Survey 25-26 projects growth in FY27 in the range of 6.8 to 7.2%. The RBI projects 6.6%, reflecting risks from the West Asia conflict and a potentially below-normal monsoon. The moderation is relative. Domestic consumption remains resilient. The infrastructure and manufacturing investment cycle retains momentum. Monetary policy remains supportive. Indias medium-term growth potential is assessed at approximately 7%.

Implications for Vardhman Special Steels Limited

The domestic backdrop is favourable for special steel. Steady GDP growth, a sustained public capital expenditure cycle and resilient consumption support demand across the automotive, infrastructure and capital goods sectors, the core end-markets for the Companys products. GST 2.0 has lifted demand for small cars and two-wheelers, the segments the Company serves most directly. Lower interest rates have improved vehicle affordability and financing conditions. Together, these forces underpin the Companys volume growth in FY26 and provide a supportive setting for its planned capacity expansion and product diversification over the medium term.

INDUSTRY OVERVIEW

GLOBAL STEEL INDUSTRY

Global crude steel production totalled 1,849.4 Mt in 2025, down 2.0% from the prior year. China drove the decline, producing 960.8 Mt, a 4.4% contraction reflecting the prolonged property correction and capacity rationalisation. India grew 10.4% to 164.9 Mt, consolidating its position as the second-largest producer. The United States rose 3.1% to 82.0 Mt, driven by infrastructure momentum.

Steel Demand

Global apparent steel use declined to approximately 1,719 Mt. Chinas demand contracted 7.1%, far exceeding the 2.0% decline anticipated earlier in the year, dragged down by a fourth consecutive year of weakness in the property sector. Developed economies stabilised, posting 0.2% growth after three years of contraction, though volumes remained roughly 15% below 2017-2018 levels.

India sustained its position as the fastest-growing major market, driven by demand for infrastructure, automotive and capital goods.

Automotive Sector

Global vehicle production reached 92.9 million units in 2025, up 3.7%. New vehicle sales rose 3.4% to 91.7 million units. EV sales reached approximately 20.7 million units, a 20% increase. By 2026, electrified vehicles are projected to account for 30% of global sales.

The transition towards electrification, light weighting and enhanced safety standards continues to intensify demand for high-strength, precision-engineered and alloy steels. Per-vehicle intensity of high-grade steel in power train, chassis and safety-critical components continues to rise. Specialised manufacturers positioned in niche, high- quality segments remain well-placed to capture this shift.

Key Risks & Uncertainties

Risks remained tilted to the downside. Escalating trade tensions and elevated tariff barriers squeezed manufacturing and export-oriented steel-consuming sectors. Chinas property weakness remained the single largest structural drag on global demand. Overcapacity concerns persisted. The Middle East conflict, erupting in early 2026, disrupted energy markets and compressed regional demand projections. Upside potential existed from easing financing conditions, sustained infrastructure spending in developing economies and stronger-than-expected fiscal stimulus.

Outlook

The World Steel Associations April 2026 Short Range Outlook projects global demand at 1,724 Mt in 2026, up 0.3%, accelerating to 1,762 Mt in 2027, up 2.2%. The industry is bottoming out after structural adjustment since 2022. Chinas contraction is expected to narrow to 1.5% in 2026 and stabilise by 2027. India is forecast to grow 7.4% in 2026 and 9.2% in 2027. These projections assume a resolution of the Middle East conflict by mid-2026. Prolonged hostilities would require material downward revisions, particularly for energy-sensitive regions.

INDIAN STEEL INDUSTRY

Indias steel sector delivered a standout performance in FY26 against a contracting global market. Provisional data from the Joint Plant Committee confirms that crude steel production rose 10.7% year-on-year to approximately 168.4 Mt.

Finished steel consumption reached approximately 164 Mt, an increase of 7 to 8%, driven by sustained momentum in infrastructure, construction, automotive and capital goods. Indias total crude steelmaking capacity reached approximately 220 MTPA during the year, keeping the industry on track towards the National Steel Policy target of 300 MTPA by 2030.

India regained its position as a net exporter of finished steel after two consecutive years as a net importer. Exports rose 35.9% to 6.6 Mt. Imports declined 31.7% to 6.5 Mt. Italy, Vietnam, Belgium, the UAE and Spain were the principal export destinations. The 12% safeguard duty on select steel imports in December 2025, primarily targeting cheaper Chinese and East Asian shipments, supported trade rebalancing. Improved domestic capacity, competitive quality and diversified market access underpinned the shift.

The Production-Linked Incentive scheme for specialty steel continued to gain traction. Cumulative investment under the scheme reached H23,022 crore, generating 2.4 Mt of specialty steel

output and over 13,000 jobs. This is a significant development for the special and alloy steel segment, reinforcing the policy commitment to import substitution in high-value downstream products.

Sectoral Demand Drivers

Infrastructure and construction remained the dominant driver of demand. Government capital expenditure on roads, railways, urban infrastructure and housing sustained a strong pipeline of steel-intensive projects.

The automotive sector contributed meaningfully to the demand for high- grade and special steels. Indias vehicle production sustained healthy volumes across passenger and commercial vehicle segments, supported by improved supply chain stability and rising domestic content requirements. Engineering and capital goods demand grew in line with the broader industrial capex cycle.

Together, these sectors reinforced a broad-based demand environment with increasing emphasis on quality, performance and application-specific steel grades, a structural tailwind for special and alloy steel producers.

Outlook

The World Steel Association projects Indias steel demand to grow 7.4% in 2026 and 9.2% in 2027, the fastest among major economies. Infrastructure spending, rail expansion, urban housing, automotive growth and a deepening capex cycle underpin this trajectory. India remains on course towards the 300 MTPA capacity target by 2030.

Raw material volatility, energy cost pressures stemming from the Middle East conflict, tightening EU trade barriers, including CBAM and the risk of redirected Chinese overcapacity warrant vigilance. The structural direction remains firmly positive. Rising per-capita consumption, the PLI-driven push towards specialty grades and expanding downstream applications in automotive, defence and renewable energy position India as the principal engine of global steel demand growth. For special and alloy steel producers, the operating environment remains favourable.

INDIAN SECONDARY STEEL INDUSTRY

Indias secondary steel sector reinforced its strategic importance in FY26. Secondary producers, operating through electric arc furnaces and induction furnaces, accounted for approximately 47% of Indias total crude steelmaking capacity.

Production reached an estimated 63 Mt, underscoring the sectors critical role in domestic supply. India has over 1,200 induction furnace operators, predominantly MSMEs, forming the backbone of regional supply and employment. The sectors shorter production cycles, cost flexibility and lower capital intensity per tonne make it highly responsive to demand shifts across construction, automotive and engineering end-use segments.

Steel demand is projected to grow 8-9% in FY27. The secondary sector is well- placed to capture incremental volumes through its operational agility and expanding capacity base.

Key Trends Shaping the Sector, 2026 to 2028

Three structural shifts will define the sectors trajectory over the medium term.

Green steel transition: Accelerating adoption of scrap-based EAF routes to meet decarbonisation targets, green certification standards and circular economy mandates. In a landmark development, Tata Steel inaugurated Indias first scrap-based EAF plant in Ludhiana in March 2026, backed by an investment of H3,200 crore, signalling the direction of travel for the broader sector.

Scrap ecosystem development: Rollout of the Steel Scrap Recycling Policy and the Vehicle Scrappage Policy to scale up organised domestic collection and ship recycling, reducing import dependence. A structural gap of 15 to 46 Mt in scrap supply persists through 2040, requiring continued imports and accelerated collection infrastructure.

Technology and quality upgrade:

Greater focus on advanced sorting, traceability and process efficiency among MSMEs, driven by rising quality standards, tightening environmental norms and the progressive conversion from induction furnaces to electric arc furnaces for superior output and green eligibility.

Green Steel Transition in Indias Secondary Steel Sector

The secondary sector is central to Indias decarbonisation pathway. Scrap-based EAF and IF steelmaking emits 60-70% less CO₂ than the traditional BF-BOF route when powered by renewable energy. This positions secondary producers as the near-term enablers of low-carbon steelmaking.

Current momentum, 2025-26

Indias steel emissions intensity is approximately 2.54 t CO₂ per tonne of crude steel, above the global average of 1.91 t CO₂/t.

The Ministry of Steels March 2025 roadmap targets a reduction to 2.2 t CO₂/t by 2029-30, aligned with the national net-zero commitment by 2070.

The policy architecture is taking definitive shape. The Green Steel Taxonomy, launched in December 2024 with a three- to five-star rating framework, establishes standardised definitions for low-emission steel.

The National Mission for Sustainable Steel, with an estimated outlay of H5,000 crore and 75-80% of funds directed at secondary producers, will provide production-linked incentives, concessional finance and risk guarantees.

The Carbon Credit Trading Scheme, set to commence trading in October 2026, will impose emissions intensity targets across nine industrial sectors, including steel. A draft Green Public Procurement policy proposes mandating that 25-37% of the steel used in public infrastructure projects be low-carbon, thereby creating assured demand for certified green steel.

Scrap utilisation remains the most immediate lever. Raising the scrap share in DRI-EAF operations from 20% to 60% can reduce emission intensity by approximately 43%.

Prospects for 2026 to 2028

EAF shift within the secondary sector. MSMEs will accelerate the transition from induction furnaces to electric arc furnaces to achieve higher efficiency, superior product quality and eligibility for green ratings and certifications.

Renewable energy integration: Captive solar installations and green power procurement will progressively lower grid-related emissions across secondary mills.

Policy tailwinds: The Carbon Credit Trading Scheme, with trading starting in October 2026 and Green Public Procurement mandates expected from FY28, will create a tangible commercial advantage for certified low-carbon producers in infrastructure projects.

Longer-term complementarity: While hydrogen-based DRI-EAF remains the anchor for deep decarbonisation post- 2030, scrap-based routes provide the essential bridge, supporting circular economy goals and enabling early compliance with global standards, including the EUs CBAM framework.

The green steel transition positions Indias agile secondary sector as a source of competitive advantage through lower carbon intensity, faster cycle times and growing alignment with international sustainability requirements. For special and alloy steel producers in this segment, the convergence of policy support, demand growth and sustainability imperatives creates a structurally favourable operating environment.

INDIAN AUTOMOTIVE MARKET

For the Indian automotive industry, FY26 was a year of two distinct halves. A subdued first half gave way to a sharp and broad- based recovery in the second half, catalysed by a landmark reform in indirect taxation.

The GST 2.0 restructuring, announced by the Prime Minister on Independence Day and effective September 22, 2025, was the defining intervention of the year. The reform reduced GST on small cars, petrol up to 1,200cc, diesel up to 1,500cc, length up to 4m and two- wheelers up to 350cc, from 28% to 18%, while consolidating the rate on larger vehicles and SUVs at a flat 40%, replacing the earlier 28% plus CESS structure. The impact was immediate. Pent-up demand was released. Festive season buying rose. Affordability improved materially across entry and mid-market segments.

According to SIAM data, total domestic vehicle wholesales reached a record 2,82,65,519 units in FY26, up 10.4% year-on-year. Every segment posted its highest annual sales, a milestone achieved after seven years.

Passenger vehicle sales reached a record 46.43 lakh units, up 7.9%. The contrast between halves was stark. H1 recorded a decline of 1.4%, while H2 rose 16.7%. The fourth quarter alone delivered 13.16 lakh units, the highest for any quarter, growing 13.2% year-on-year.

Electric vehicle adoption accelerated. Registrations of electric passenger vehicles rose over 80% year-on-year. Overall EV penetration is estimated at approximately 8% of new vehicle registrations. Indias automotive sector contributes 7.1% of GDP and supports over 30 million jobs directly and indirectly.

Key growth drivers

GST 2.0 and improved affordability. The reduction in effective tax rates on small cars, two-wheelers and commercial vehicles was the single most significant catalyst for demand. Combined with successive repo rate cuts by the RBI, financing conditions improved substantially in the second half.

Infrastructure and economic growth. Sustained public capital expenditure on roads, railways, logistics and urban infrastructure supported demand across commercial and passenger segments.

Premiumisation. Rising consumer aspirations and income levels continued to drive demand for SUVs and premium vehicles. This trend carries direct implications for steel intensity per vehicle, as larger platforms require higher volumes of high-strength and alloy steels.

Government initiatives supporting the automotive sector PM E-DRIVE Scheme: The PM Electric Drive Revolution in Innovative Vehicle Enhancement scheme, launched in October 2024 with an outlay of H10,900 crore, replaced the FAME-II scheme.

It supports demand incentives for electric two-wheelers, three-wheelers, trucks, buses and ambulances, as well as the development of 72,300 public EV charging stations. In its first year, the scheme enabled the sale of approximately 1.13 million electric vehicles, at a lower per-unit subsidy than FAME-II.

Production Linked Incentive Scheme: The PLI scheme for automobiles and auto components continues to incentivise domestic manufacturing, localisation and the adoption of advanced technologies, including electric and hydrogen-based platforms.

Vehicle Scrappage Policy: The policy aims to phase out older, polluting vehicles, stimulating replacement demand and supporting fleet modernisation.

PM Gati Shakti National Master Plan: The master plan continues to enhance multimodal connectivity and logistics efficiency, supporting demand for commercial vehicles by improving freight economics.

Implications for special steel demand

The automotive sector is one of the largest consumers of special and alloy steels. The structural trends shaping the industry, premiumisation, electrification, light weighting and enhanced safety standards, are directionally positive for demand in this segment. Components requiring superior fatigue resistance, formability and surface finish, including bearing steels, spring steels, casehardening grades and high-carbon wire rods, stand to benefit as vehicle complexity and per-unit steel intensity rise.

BUSINESS OPERATIONS

How did FY26 pan out from an operational perspective?

Sales volume reached 225,000 tonnes, meeting the target and exceeding the 215,000 tonnes shipped a year earlier.

The year opened under pressure. A planned shutdown for the Kocks Block installation cut first-quarter output. Output and shipments then built through the year as the new equipment stabilised. The Company tracks turnover in terms of tonnes shipped, a measure within its control, since steel prices move with raw material cycles. quick changeovers. It stabilised faster than expected and ran reliably from day one. It also lets the Company replace imported Japanese steel with domestic steel for domestic OEMs.

The Company raised the heat size from 37 tonnes to 40 tonnes and introduced the 210x210 section. Both lifted cast productivity and improved the production of larger-diameter products. Yields rose. Energy per tonne fell. On 1 July 2025, the Company moved to SAP S/4HANA, integrating operations across functions and strengthening internal controls.

The walking-beam reheating furnace was commissioned in March 2026, with full benefits from the 2nd Quarter of FY27. It lifts rolling capacity from 200,000 tonnes to 270,000 tonnes. It extends billet length from 4.2 metres to 5.2 metres, improving yields by reducing end cuts and burning losses. It also brings along part of outside rolling job work in-house, reducing job work and freight costs.

The solar power plant was commissioned in Feb26, generating about 9 crore units a year. It cuts power costs and reduces the carbon footprint from 0.73 to 0.48 tonnes of CO₂ per tonne of steel.

What were the key operational highlights during the year?

The Kocks Block, commissioned in the first quarter, was the centre piece. This three-roll technology holds roundness to +/- 0.2 mm, improves surface quality and rolls any size the customer needs, with

What progress was made on capital projects and capacity?

FY26 completed a debottlenecking cycle at the Ludhiana facility. The Kocks Block was the first step. Three projects followed.

Commissioning of the 2nd NDT Line is on track and will be commissioned by the second quarter of FY27. It will ease the quality-testing bottleneck, mainly for four-wheeler applications. Together, these projects take rolling capacity to 270,000 tonnes and improve throughput, quality and cost as the Company enters FY27.

How did the domestic marketing team perform?

Domestic sales led the business, with the automotive sector driving growth. Despite raw material volatility and price competition, the Company held volumes, backed by demand from all major OEs.

Four strategies anchored the year:

• Localisation deepened with Aichi Steels support, winning fresh approvals and replacing Japanese- origin steel.

• A closed-loop circular economy project with Maruti Suzuki began in September 2025. Scrap from Maruti plants returns to Vardhman, reentering the chain as new automotive steel.

• Higher precision from the Kocks Block, the furnace and the NDT upgrades opened the door to fourwheeler and high-grade applications.

• Green Steel set the Company apart.

Its carbon footprint is much below the government norm and that of major producers, aligning with OEM sustainability goals and likely regulatory preferences.

These efforts held market share and customer loyalty as industry realisations softened.

How did the international marketing team perform and what is the outlook?

Exports are a rising share of the business. Direct exports went mainly to Thailand, over 70% of direct volumes, with smaller shipments to the Philippines, Indonesia, Malaysia and other ASEAN markets. Indirect exports, through domestic customers components, reached the United States, Europe and Mexico.

The year brought headwinds. U.S. tariffs, a weaker Japanese Yen and trade uncertainty pressured Indian products in some markets.

The Company held export volumes by improving quality and securing approvals, with Aichi Steels support.

The Management aims to lift the export share through three priorities:

• Using Aichis global network and the Toyota Production System to win higher-value approvals.

• Widening the bright bar and alloy range to meet international OEM standards.

• Promoting Green Steel and circular economy credentials to buyers in Europe and other regulated markets.

With capacity expansions underway and the forging facility ahead, the Company can broaden its international presence while holding domestic growth.

What are the Companys prospects and priorities beyond FY26?

The Company is moving from an automotive supplier to a special steel provider, a direction it describes as becoming a supermarket of special steels. Three pillars support this.

First, capacity. A new Greenfield steel plant will add 500,000 tonnes per year of special and alloy steel, with production targeted for FY30. A brownfield capacity expansion at Ludhiana, through debottlenecking operations, will raise melting capacity from 300,000 tonnes to 360,000 tonnes, subject to approval from the competent authority.

Second, forward integration. A forging project with Aichi Steel moves the Company closer to the final automotive customer. It targets ring gears and similar high-value parts for passenger car makers and Tier 1 suppliers, with commissioning planned for FY28. Aichi will transfer its forging expertise and the Toyota Production System, and a senior executive from Aichi will lead the unit to secure quality from the start.

Third, diversification. Automotive accounts for almost all current output. Over the next decade, the Company aims to take non-automotive steel

to about 30% of the mix, targeting bearings, railways, defence, aerospace, oil & gas and tool & die steel. Tool & die alone is a sizeable import-substitution opportunity.

These moves rest on disciplined execution and a conservative funding stance. The aim is to become the number one special steel producer in India.

FINANCIAL PERFORMANCE

Sales volume rose to 225,000 tonnes in FY26 from 215,000 tonnes in FY25, a gain of close to 5%. Profit Before Tax increased from H125 crore in FY25 to H164 crore in FY26 and Profit After Tax reached H122 crore, against H93 crore a year earlier, an increase of around 31%. The result reflects volume growth, firmer margins through the second half and a stronger balance sheet.

Revenue and realisations

Revenue followed volume rather than price. Steel prices eased through much of the year, tracking softer raw material costs, so turnover stayed close to the prior-year level even as tonnage grew. The Company assesses performance primarily on tonnes shipped, since selling prices move with raw material cycles. Revenue from operations stood at H1,754 crore, compared with H1,764 crore in FY25.

EBITDA and margins

The Company measures profitability through EBITDA per tonne, a metric that separates operating performance from commodity price swings. EBITDA per tonne averaged close to H9,250 for the year, within the guided range of H7,000 to H10,000. The first quarter opened near H7,100, held back by a planned shutdown for new equipment and an inventory valuation adjustment. Margins recovered through the year, crossing H10,000 per tonne in the second and third quarters as the new assets stabilised. EBITDA for the year stood at H209 crore, against H177 crore in FY25. The operating margin was 9.49%, compared with 8.39% in FY25 and the net margin was 6.96%, against 5.28%.

Fund infusion

Aichi Steel Corporation, the Companys long-standing partner, infused H385 crore of equity during the year. The investment lifted Aichis holding to 24.9%. It strengthened net worth, funded deleveraging and created headroom for the expansion cycle ahead. Shareholders funds rose to H1,277 crore as on March 31, 2026, from H798 crore a year earlier.

Debt and leverage

The Company applied H150 crore of the infusion toward prepaying Working Capital Demand Loans, lowering finance costs. As a result, the Company operated with a debt-free balance sheet during the year. The net debt-to-equity ratio stood at 0.00x, against 0.14x in FY25.

Also, the finance cost for the year reduced to H12 crore, compared to H19 crore in the previous year. The Company intends to maintain conservative leverage through the coming investment phase, holding to a debt-to-equity ratio ceiling of 0.75 and a preference for operating near 0.50.

Working capital

Working capital stayed under control. The decline in raw material prices throughout the year lowered input costs, resulting in lower inventory valuations and declining realisations, which led to lower receivables. The inventory turnover ratio stood at 5.12x as against 5.11x in FY25, and the trade receivables ratio at 6.51x, down from 6.74x.

Cash flow

Cash flow from operations stood at H106 crore, compared with H127 crore in FY25. The years cash generation, together with the equity infusion, funded the capital programme while preserving liquidity.

Capital expenditure

FY26 completed a debottlenecking cycle at the Ludhiana facility, covering the Kocks Block, the walking-beam reheating furnace, the solar power plant and the second NDT line which will be commissioned by September 2026.

Capital expenditure for the year was H222 crore, funded through internal accruals and equity infusion. As a result, gross block increased to H854 crore as on March 31, 2026. Looking ahead, the Company has lined up an investment cycle covering a greenfield steel plant, a forging facility and a brownfield melting expansion. This will draw on a mix of internal accruals, support from the Vardhman Group, participation from Aichi Steel and, if required, a capital market issue, while holding leverage within the stated ceiling.

Returns and distribution

Return on net worth was 11.76%, against 12.27% in FY25. The slight moderation reflects the expanded equity base following the H385 crore infusion, which lifted net worth, even as Profit After Tax rose by 31%. The Board recommended a dividend of H3.50 per share for the year.

Outlook

The Company carries momentum into FY27. The full-year benefit of the reheating furnace, the savings from solar power and the shift of job work rolling to in-house are expected to lift EBITDA per tonne and the guidance to the H8,000-H11,000 band. One factor will temper the gain. Government incentives are expected to taper as the GST refund scheme concludes, and solar self-generation reduces electricity duty benefits. The Company expects to absorb this through operating efficiencies and product mix.

Key Financial Ratios

Particulars	UOM	FY26	FY25	Change(%)	Reason
Trade Receivables Ratio	(x)	6.51	6.74	-3.41
Inventory Turnover Ratio	(x)	5.12	5.11	0.20
Interest Coverage Ratio	(x)	14.23	7.81	82.20	H385 Crore funds infused by Aichi Steel Corporation against fresh Equity issuance. Out of these funds, H150 Crore utilised towards repayment of working capital borrowings & some towards capex and remaining lying in current investments, leading to lower finance cost, improved current ratio and net debt-equity ratio.
Current Ratio	(x)	2.90	2.11	37.44
Net Debt-Equity Ratio	(x)	0.00	0.14	-100.00
Operating Margin	(%)	9.49	8.39	13.11
Net Margin	(%)	6.96	5.28	31.82	Due to decline in raw material prices, improvement in yield and operational efficiencies.
Return on Net Worth	(%)	11.76	12.27	-4.16	Due to increase in equity on account of issuance of shares to Aichi Steel Corporation.

Internal Control Systems & Their Adequacy

The Company periodically reviews and strengthens its internal control framework by benchmarking it against prevailing industry standards. Evolving business requirements, regulatory changes and corporate governance practices are systematically integrated into existing processes to ensure alignment with compliance obligations and the expectations of key stakeholders, including customers and financial institutions.

Senior management closely monitors recommendations arising from internal audits, enabling continuous improvement of control systems. The Company also upgrades its IT infrastructure regularly to support data-driven decisionmaking and strengthen the effectiveness of its overall controls.

HUMAN RESOURCE

Vardhmans people are central to its progress.

Their commitment and skill have taken the Company from a conventional special steel manufacturer to a respected player in the industry. Their work has secured approvals for select steel grades from the Companys global partner and this success has sharpened their drive to further improve efficiency and quality. A structured training calendar supports this, covering technical, operational and behavioural areas. The Companys Japanese partner leads training in safety, operational discipline and timeliness, strengthening the teams professional capability.

The Company builds cohesion through on-the-job and off-the- job engagement. These efforts improve collaboration and align the team around a shared goal of better performance.

During the year, the Company expanded its workforce to support growing operations and built its leadership pipeline. As of March 31, 2026, the Company had 1,400 permanent employees on its rolls.

RISK MANAGEMENT

In a connected and fast-moving business environment, risk is a dimension to anticipate, understand and navigate. Vardhman Special Steels runs an Enterprise Risk Management framework built into its strategic planning and daily operations.

A dedicated Risk Management Committee of the Board guides the framework. It identifies, assesses and mitigates risks across strategic, operational, financial and environmental domains, while acting on emerging opportunities.

This approach rests on continuous monitoring, crossfunctional ownership and collaboration with global partners such as Aichi Steel. It has carried the Company through raw material price swings, geopolitical shifts and changing customer demands.

STRATEGIC & MARKET RISKS

DEMAND RISK

End-user sectors, particularly the automotive sector, move through cycles. Global trade uncertainty increases exposure.

Mitigation measures

The Companys business is closely tied to the four-wheeler industry, so a slowdown in that industry affects performance.

The Management is building a presence in non-automotive sectors, a plan that will unfold over the next decade. In the near term, a large customer base with confirmed orders holds performance steady through any demand contraction. A growing international presence adds a further outlet for output.

Reliance on a few large customers in the automotive value chain could affect stability. Mitigation measures

Consistent product quality has built a wide customer base, including leading OEMs and Tier 1 & 2 players, for whom the time and cost of switching vendors run high. No single customer accounts for more than 15% of output. As operations expand, the customer portfolio widens further.

OPERATIONAL & CAPACITY RISKS

A mismatch among melting, rolling and downstream capacities could constrain growth as demand rises.

Mitigation measures

Steel-melting capacity remains adequate for the medium term, supported by process improvements that lifted output efficiency. The rolling mill expansion to 270,000 TPA aligns steel output with rolled product capacity, capturing profitability that previously went to outsourcing partners.

Special and alloy steels demand consistently high standards in a specification-driven market. Mitigation measures

A deep quality culture, reinforced through Aichi-guided SOPs, regular deviation analysis and investment in upgraded testing laboratories, delivers zero-defect benchmarks. Marquee global approvals and IATF 16949 certification set the Company apart. The new forging line will further improve consistency and traceability.

FINANCIAL & COMMODITY RISKS

Ferrous Scrap, ferro alloys and currency movements in USD, EUR and JPY can affect margins. Mitigation measures

Advance procurement, forward-contract hedging and diversified sourcing, including domestic sourcing through closed-loop initiatives, stabilise costs. A strong balance sheet with a zero net debt-to-equity ratio and healthy operating cash flows helps absorb short-term shocks while funding growth internally.

LIQUIDITY & FUNDING RISK

Ongoing expansions and working capital require steady access to capital in a higher-interest-rate environment. Mitigation measures

Financial discipline, internal accruals and a deleveraged balance sheet fund major projects with limited external borrowing. Regular cash-flow forecasting and access to low-cost banking facilities reinforce liquidity.

ENVIRONMENTAL, PEOPLE & OTHER RISKS

ENVIRONMENTAL & SUSTAINABILITY RISK

Regulation and stakeholder expectations around carbon footprint and resource use continue to rise.

Mitigation measures

Investment in renewable power, targeting 40 to 45% of requirements, water and energy optimisation, and the closed-loop recycling programme place the Company among the leaders in green steel. Dedicated EHS teams monitor compliance with ISO 14001 and ISO 45001 through periodic audits.

Attrition and skill gaps persist in a competitive manufacturing landscape. Mitigation measures

Employee-centric policies, ESOPs for leadership, structured career progression and regular engagement initiatives support retention and motivation. Training aligned with new technologies, including forging and digital quality systems, keeps the workforce future-ready.