Rathi Steel

Rathi Steel and Power Ltd reported a total income of approximately INR 156.4 crores for Q2 FY26, achieving an EBITDA margin of around 4% and an EBITDA of INR 6.37 crores. For the first half of FY26, the company recorded a total revenue of approximately INR 311 crores with an EBITDA of INR 12.6 crores. Sales in Q2 FY26 showed a significant Q-on-Q improvement of 27-28% compared to INR 121 crores in the corresponding quarter last year, indicating a positive trend despite industry challenges^🌐.

The company's manufacturing operations include an 85,000 tons per annum steel melting capacity and a 2 lakh tons per annum rolling capacity. The melting shop is currently operating at 55-60% utilization. The TMT bar mill, which recommenced in April, is gradually ramping up and has reached 40-50% of its total rolling capacity. Management is actively focused on improving overall capacity utilization to 80% to enhance operational efficiency and leverage existing assets.

Rathi Steel's strategy is centered on value-added stainless steel products and TMT bars, with stainless steel contributing 60-65% and TMT around 30% to H1 FY26 sales. The company aims to diversify its portfolio and improve margins by integrating backward for TMT production, similar to its end-to-end stainless steel operations. A strong distribution network across North India is a key asset, supporting efficient product reach and the rollout of 550 and 500 grades of TMT bars.

The company's cost of debt is currently high, around 18%, a legacy from past challenges. However, management is actively negotiating with existing lenders and has received a sanction for a reduced rate of approximately 16%. While the working capital cycle is comfortable, it is noted as expensive due to the practice of buying material on credit. Inventory levels have seen an absolute increase, primarily attributed to the recommencement of the TMT mill and the need to maintain stock for various sizes.

Rathi Steel is strategically pivoting towards a sustainable business model focused on recycling-based circular economy steelmaking, aiming for minimal fossil fuel consumption and a lower carbon footprint. The company is exploring green certifications and notes a growing preference for green steel from real estate developers and government tenders. This initiative is seen as a competitive advantage, and plans are underway to integrate the steel metal shop with the TMT mill to produce green products.

The industry faces a soft scenario with pricing pressure and rising imports, particularly impacting the flat product space. Despite this, domestic consumption and demand for steel products continue to grow at a decent pace, providing headroom for all steel players. Management acknowledges the typical Q3 weakness in the NCR region due to pollution and construction restrictions, for which they take pre-emptive steps like annual plant maintenance.