Vraj Iron and Steel Limited
Company
| Website 🔗 |  |
| Business Activity | Manufacture |
| Division | Iron and Steel |
| Sub-class | Sponge Iron, MS Billets, TMT Bars |
| Location | Raipur, Chhattisgarh Bilaspur, Chhattisgarh |
| Establishment Year | 2004 |
Management
| Managing Director | Vijay Anand Jhanwar |
| Educational Qualifications | Bachelor’s degree in Engineering from Nagpur University |
| Experience | Approximately 22 years in the iron and steel industry |
| Annual Salary | ₹ 180 Lakhs |
| Total Number of Employees | 531 |
About
Vraj Iron and Steel Limited is an integrated steel manufacturing company with a primary focus on producing Sponge Iron, M.S. Billets, and TMT bars, marketed under the brand name ‘Vraj’. The company operates two manufacturing plants situated in Raipur and Bilaspur, Chhattisgarh.
Products and Services:
Sponge Iron: A key raw material in steel manufacturing, used in both induction and electric arc furnaces.
MS Billets: Semi-finished steel products that are further processed into finished goods like TMT bars or structural steel.
TMT Bars: High-strength reinforcement bars are used extensively in the construction industry.
By-products: The company also produces by-products like Dolochar, Pellet, and Pig Iron, which contribute to additional revenue streams.
Clients:
Industrial Customers: The company primarily caters to industrial customers, including those in the construction and infrastructure sectors.
End-users: TMT bars, in particular, are also sold to end-users in the construction industry.
Traders: The company also sells its products through brokers and dealers who further distribute them in the market.
Manufacturing Process:
Sponge Iron: Produced through the reduction of iron ore in a rotary kiln using non-coking coal. The waste heat from this process is utilized to generate electricity in a captive power plant.
MS Billets: Manufactured by melting sponge iron, scrap, and fluxes in induction furnaces to produce liquid steel, which is then continuously cast into billets.
TMT Bars: Created by reheating and rolling MS billets, followed by a thermo-mechanical treatment process to enhance their strength and ductility.
Raw Materials:
Iron Ore/Iron Ore Pellet: Sourced from various suppliers, including NMDC, Godawari Power & Ispat Limited, Sarda Energy & Mineral Limited, and Rungta Mines Limited.
Coal: Domestic coal is procured from South Eastern Coalfields Limited, while imported coal is sourced from suppliers like Adani Enterprises Limited and Jan Man Trade India LLP.
Dolomite: Obtained from local markets in Chhattisgarh and Madhya Pradesh.
Scrap and Ferro Alloys: Used in the production of MS Billets, sourced from suppliers in Chhattisgarh.
Suppliers:
NMDC Limited: A major supplier of iron ore.
South Eastern Coalfields Limited: A key supplier of domestic coal.
Other Suppliers: The company also procures raw materials from various other suppliers, including Lloyds Metals and Energy Limited, Rungta Mines Limited, Sarda Energy and Minerals Limited, JSW Techno Projects Management Limited, and several local suppliers in Chhattisgarh and Maharashtra.
Distribution Network:
Direct Sales: The company sells its TMT bars directly to traders, enabling greater control over pricing, distribution, and customer relationships.
Agents: Sponge Iron and MS Billets are sold through agents who operate on a commission basis. These agents likely have established networks within the industry, facilitating wider market reach for these products.
Other Key Aspects:
Certifications:
Vraj Iron and Steel Limited has obtained certifications for Quality Management Systems (ISO 9001:2015), Environmental Management System (ISO 14001:2015), and Occupational Health & Safety Management System (ISO 45001:2018), demonstrating its commitment to quality, environmental responsibility, and workplace safety.
Manufacturing Process Flowchart
Revenue – Category
Audit and Legal
Auditor’s Remarks:
The auditor’s Report was clean with no qualifications.
Related Party Transactions:
For the nine months ending on December 31, 2023, the total value of related party transactions represented 5.83% of total income.
Non-Compliances and Other Issues:
Delayed Statutory Payments: The company has a history of delays in paying certain statutory dues, such as GST, TDS, and employee provident fund contributions.
Contingent Liabilities:
As of December 31, 2023, Vraj Iron and Steel Limited has contingent liabilities totalling ₹49.3 Crores. These contingent liabilities represent approximately 26.32% of the company’s net worth. They primarily stem from:
- Tax Matters in Dispute: ₹1.1 Crores
- Water Charges Penalty: ₹19.8 Lakhs
- Corporate Guarantee to Vraj Metaliks Private Limited: ₹25 Crores
- Demand for Energy Development Cess: ₹2.4 Crores
- Demand for Electricity Duty: ₹3.6 Crores
- Letters of Credit/Bank Guarantees: ₹17 Crores
Legal Cases:
Cases Filed Against the Company
Demand Notice for Energy Development Cess:
The Chief Electrical Inspector, District-Raipur (Chhattisgarh) issued a notice on December 26, 2023, demanding payment of energy development cess amounting to ₹24.7 Lakhs for the period from November 2011 to October 2023. This demand is based on an interim order from the Supreme Court of India in a case where the validity of the Chhattisgarh Cess (Amendment) Act, 2004 is being challenged.
Demand Notice for Unauthorized Groundwater Extraction:
The Sub Divisional Office, Water Resources Sub Division, Bilaspur (Chhattisgarh) issued a notice on January 4, 2024, demanding payment of water tax and penalty charges for unauthorized extraction of groundwater since May 1, 2006, totalling ₹24.5 Lakhs. The company has responded by stating they have obtained the necessary No Objection Certificate and paid some charges, but the matter of penalty charges remains pending.
Notice Regarding Payment of Electricity Duty:
The Office of the Chief Electrical Inspector, Chhattisgarh Government, issued a notice on February 1, 2024, demanding payment of electricity duty and interest for the period from December 28, 2014, to March 2018, totalling ₹4.16 Crores. The company has responded by requesting a revision of the demand based on the power factor mentioned in their electricity bills.
Cases Filed by the Company
Petition for Special Leave to Appeal:
The company has filed a petition challenging an order passed by the High Court of Chhattisgarh at Bilaspur, which upheld the validity of certain rules and notifications related to CENVAT credit utilization and payment of duty. The company is challenging the vires and authority of the Central Government in framing these rules. The matter is pending before the Supreme Court of India.
SWOT Analysis
Strengths
| Integrated and well-established manufacturing setup, allowing for cost efficiencies and quality control. |
| Strategic location of plants near raw material sources and end-users, reducing transportation costs and improving logistics. |
| Diversified product mix, reducing dependence on a single product and mitigating revenue risks. |
| Consistent track record of growth and financial performance, demonstrating operational efficiency and profitability. |
Weaknesses
| Geographical concentration of manufacturing facilities in a single region, increasing vulnerability to regional risks. |
| Dependence on a few key customers, increasing vulnerability to customer-specific risks. The top 5 customers contributed 41% to the revenue in the 9M period of FY 2024. |
| Lack of long-term agreements with customers, creating uncertainty in demand and potential revenue fluctuations. |
Opportunities
| Growth potential in the Indian steel market due to increasing demand from infrastructure, construction, and automotive sectors. |
| Government initiatives and policies support domestic steel production and consumption, creating a favourable business environment. |
| Growing demand for steel in renewable energy and infrastructure projects, offering new market opportunities. |
Threats
| Volatility in steel prices and raw material costs, impacting profitability and financial stability. |
| Intense competition from domestic and international steel manufacturers, potentially impacting market share and pricing power. |
| Cyclical nature of the steel industry and its dependence on the overall economic conditions, impacting demand and profitability. |
Porter’s Five Forces1
| Threat of New Entrants | LOW |
| The steel industry requires significant capital investment, technological expertise, and access to raw materials, creating high barriers to entry. Additionally, the presence of established players and government regulations further increase the challenges for new entrants. |
| Bargaining Power of Suppliers | MODERATE – HIGH |
| The company’s dependence on key suppliers for raw materials like iron ore and coal, coupled with price volatility in these commodities, indicates that suppliers may have moderate to high bargaining power. |
| Bargaining Power of Buyers | MODERATE |
| The company’s reliance on a few key customers and the absence of long-term contracts suggest that buyers may have moderate bargaining power. |
| Threat of Substitute Products or Services | MODERATE |
| Steel faces competition from substitute materials like aluminum, cement, and plastics in certain applications. The potential for increased use of these substitutes, driven by factors like cost or environmental concerns, poses a moderate threat to the steel industry. |
| Rivalry Among Existing Competitors | HIGH |
| The Indian steel industry is highly competitive, with several domestic and international players vying for market share. The presence of large, established companies suggests a high level of rivalry. |
Peer Comparison
The company’s performance on various financial and operational metrics compared to its peers is as follows:
| Key Performance Indicators (FY 2022-2023) | Vraj Iron and Steel Limited | Sarda Energy & Minerals Limited | Godawari Power and ISPAT Limited | ESL Steel Limited | Shyam Metalics and Energy Limited | Jindal Steel and Power Limited | Steel Authority of India Limited | JSW Steel | Tata Steel |
| Revenue (₹ Cr.) | 516 | 4,212 | 5,753 | 7,852 | 12,610 | 61,005 | 104,448 | 165,960 | 243,353 |
| EBITDA Margin | 15.40% | 25.20% | 20.00% | 15.50% | 11.80% | 18.90% | 8.60% | 11.20% | 13.40% |
| PAT Margin | 10.50% | 14.30% | 13.80% | -7.10% | 6.70% | 6.50% | 2.10% | 2.50% | 3.30% |
Green Box
IPO Funds:
Funding the Expansion Project at the Bilaspur Plant:
- Repaying borrowings of ₹70 Crores from HDFC Bank, which were taken to finance the initial phase of the expansion.
- Funding further capital expenditure of up to ₹59.5 Crores for the Bilaspur Plant expansion. The expansion aims to increase the plant’s aggregate installed capacity from 60,000 TPA to 328,500 TPA. This will involve adding a new sponge iron kiln, setting up an MS Billets manufacturing facility, and installing a 15 MW captive power plant.
- This will more than double the total installed capacity of the company from 2,31,600 TPA to 5,00,100 TPA by April 2025, if the company executes successfully as per plans.
- Reasons: The expansion will enable the company to produce MS Billets at Bilaspur Unit and generate its own power, leading to cost reduction and improved margins.
Strategic Plant Locations:
The company’s manufacturing plants are strategically located in Chhattisgarh, a mineral-rich state in India. This proximity to raw material sources and key markets reduces transportation costs and logistical complexities, providing a competitive advantage in terms of cost efficiency and timely delivery.
Integrated Operations:
Vraj Iron and Steel operates an integrated steel manufacturing process, allowing for greater control over the entire value chain, from raw material sourcing to finished product delivery. This integration can lead to cost efficiencies, improved quality control, and enhanced responsiveness to market demands.
Industry Outlook:
By FY26, steel consumption is anticipated to reach between 151-155 MT, reflecting a compound annual growth rate (CAGR) of 7-8% from FY24 to FY26.
Automotive Sector Growth:
The expanding automobile industry, especially the shift towards electric vehicles, will require more steel for manufacturing, contributing to the industry’s growth.
Government Initiatives:
Various government programs and policies, such as the Production Linked Incentive (PLI) Scheme for specialty steel and the focus on affordable housing under the PMAY scheme, are expected to further stimulate steel demand.
Focus on Value-Added Products:
The company emphasizes its strong focus on value-added products, particularly TMT bars. This strategic emphasis could lead to higher profit margins and a stronger market position compared to competitors who may be more focused on commodity-grade steel products.
Amber Box
Non-Lifting of Contracted Coal:
The company has agreements to purchase coal from South Eastern Coalfields Limited. If the company fails to lift the specified percentage of the annual contracted capacity, it may be subject to penalties.
Geographical Concentration:
The company’s manufacturing facilities are concentrated in a single region, Chhattisgarh. This geographical concentration increases its vulnerability to regional risks, such as natural disasters, economic downturns, or changes in local regulations.
Customer Concentration: A significant portion of the company’s revenue is derived from its top 10 customers (64%), indicating a reliance on a few key clients. This concentration increases the company’s vulnerability to customer-specific risks, such as loss of business or delayed payments.
Debt Ratios:
Debt-to-Equity Ratio of 0.32, suggests that the company has a relatively conservative debt structure.
Red Box
Volatility in Raw Material and Steel Prices:
The steel industry is characterized by price volatility for both raw materials and finished products. This volatility can impact the company’s profit margins and financial performance, especially if it is unable to pass on increased costs to customers.
Cyclical Nature of the Industry:
The steel industry is cyclical, with demand fluctuating based on economic conditions and the performance of end-user industries like construction and automotive. Economic downturns could lead to reduced demand for the company’s products and impact its profitability.
Execution Risk Associated with Expansion Plans:
The company’s ambitious capacity expansion plans carry inherent execution risks. Delays, cost overruns, or unforeseen challenges in implementing these plans could negatively affect the company’s financial position and growth prospects.
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- The force value of “LOW” is considered good Click Porter’s Five Forces article for more information. ↩︎
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