Company Introduction

Rathi Steel & Power Limited is an established participant in the Indian steel industry for over five decades, carrying forward the legacy of the Rathi brand. Incorporated in 1971, the company has a modern manufacturing facility spread across approximately 12.5 acres in Ghaziabad, NCR region. The facility has an installed steel melting capacity of around 85,000 tons per annum and a rolling capacity of approximately 200,000 tons per annum. The company manufactures stainless steel billets, stainless steel wire rods, and TMT bars, serving applications across infrastructure, construction, engineering, and other industrial sectors.

Q1 FY27 Financial Performance

  • Total Income: ₹193.67 crores, registering a year-on-year growth of 24.6%
  • EBITDA: ₹7.77 crores, reflecting growth of 24.83% year-on-year
  • Profit After Tax: ₹3.48 crores, registering year-on-year growth of 84.5%
  • PAT Margins: Improved to 1.8%, representing an expansion of 58 basis points over Q1 FY26

Operational Performance

  • Total Volumes: Increased by approximately 30% year-on-year to 28,372 metric tons compared to 21,864 metric tons in Q1 FY26
  • TMT Bar Volumes: Grew by more than double to approximately 18,677 metric tons from approximately 8,200 metric tons in the corresponding quarter last year
  • Stainless Steel Volumes: Were softer, declining by approximately 10-12% year-on-year to about 9,000 metric tons due to geopolitical disruptions affecting export-oriented applications

Product Mix and Market Reach

  • Revenue Mix: Approximately 45-48% from TMT bars, with the remainder from stainless steel products
  • Geographic Concentration: 80-90% of sales come from customers in the NCR region, with TMT bars being 100% NCR-focused and some stainless steel sales going to West India (mainly Gujarat)
  • The company's presence across both stainless steel and MS TMT bars provides flexibility to respond to changing demand conditions

Capacity Utilization and Expansion Plans

  • Rolling Mill Utilization: Achieved close to 51-52% in FY26, with guidance to achieve utilization in excess of 60% for FY27
  • The company has successfully completed trial runs for integrating melting capacity with the TMT plant, which was previously operational only for the stainless-steel division
  • Additional melting capacity expansion will be considered once current operations achieve 70-75% utilization, potentially including refining equipment for value-added products

Capex and Modernization

  • FY27 Capex Incurred: Approximately ₹4-5 crores so far in FY27
  • Full-Year Capex Guidance: Estimated at ₹15+ crores, largely from internal accruals, focused on regular upgrades, replacing old equipment, debottlenecking, and modernization
  • Normal annual capex ranges between ₹10-12 crores, excluding additional projects

Raw Materials and Cost Structure

  • Procurement: More than 95% of raw materials are sourced domestically to avoid currency fluctuations and volatility
  • Major raw materials like ferro alloys are hedged based on order book positions
  • Power: Approximately 20-25% of electricity consumption comes from renewable open access sources, procured through exchanges with flexibility to adjust based on pricing

Brand and Certifications

  • The Rathi brand is owned by a family trust (extended Rathi family), and the company pays a negligible license fee of ₹400-500 per annum
  • The company holds GreenPro certification, which provides preference when bidding for orders with large builders
  • BIS approval is also in place for TMT bars

Working Capital and Financing

  • Steel business is working capital intensive, with additional requirements currently met through extended credit periods from raw material suppliers
  • The company is in talks with lenders for refinancing options to lower borrowing costs and enhance working capital facilities
  • Current average credit period offered to customers: 30-40 days

Management Commentary and Outlook

  • The company aims to maintain a 20% CAGR growth from FY25 base
  • Margin improvement target: 2-3% EBITDA margin improvement over the next two years, with focus on achieving peer-level performance
  • Key margin levers: Capacity ramp-up to maintain 20% growth, access to lower-cost working capital, and integration of TMT operations
  • Full-scale commercial operations for the integrated TMT system are expected by Q4 FY27, after addressing technical issues and considering seasonal demand patterns
  • Rooftop solar initiative is still under assessment with suppliers, not yet finalized due to feasibility studies

Challenges and Market Environment

  • The quarter faced challenges including softer steel realizations, volatile energy prices, geopolitical uncertainties, and fluctuating demand
  • Stainless steel segment was affected by high ocean freight and disruptions in West Asia impacting export-oriented customers
  • Q2 typically sees subdued demand due to monsoon season, while Q3 faces construction halts in NCR due to pollution regulations

Customer Base

  • TMT bars cater largely to real estate segment (both retail and institutional)
  • Stainless steel wire rods cater to B2B applications across engineering and household infrastructure
  • The company maintains flexibility to shift product mix based on margin attractiveness rather than sales price or volume