Detailed Narrative
Q3 & 9M FY25 Financial Performance Overview
Rathi Steel reported Q3 FY25 revenue of INR 104.43 crores, a 3.17% year-on-year increase, driven by a 12% volume growth despite soft stainless steel prices. EBITDA for the quarter stood at INR 3.0 crores with a 2.89% margin, and PAT was INR 0.53 crores. For the nine months ended December 31, 2024, revenue was INR 353.58 crores, a decline from INR 374.47 crores in the prior period, primarily due to a strategic plant shutdown in Q1. However, 9M PAT saw a significant increase to INR 10.15 crores from INR 3.1 crores, with an EBITDA margin of 4%.
Operational Challenges and Market Dynamics
The company faced challenges in Q3 FY25 due to volatile raw material prices and soft stainless steel finished prices. Additionally, frequent construction bans in the NCR region, imposed by the Honorable Air Commission due to high pollution levels, significantly impacted demand. Management noted an ongoing industry challenge🌐 from material infiltration from China and Southeast Asia, for which they are advocating protective measures. Despite these headwinds, the company maintained and improved overall volumes.
Product Development and Expansion Plans
Rathi Steel recently received BIS approval for 32mm stainless steel rebars and plans to expand this to a full range of 8mm to 32mm. The company aims to apply for the full range approval by the end of Q4 FY25 and expects to launch these products in Q1 FY26. This expansion is crucial for tapping into the evolving market, particularly government projects for construction over water, where stainless steel rebars offer enhanced safety and longer life cycles.
Capital Expenditure and Modernization Efforts
The company earmarked INR 10 crores from a recent fundraise for capital expenditure, which has been almost fully utilized for cost optimization and plant modernization projects. These initiatives have already started yielding benefits, with energy costs coming down significantly. Rathi Steel continues to invest in upgrading its facilities through internal accruals to maintain efficiency and keep pace with industry standards, given its older plant setup.
Debt Management and Refinancing Strategy
Having bounced back from a period of financial stress, Rathi Steel is now focused on prudent debt management. The company is currently availing a working capital loan at a high cost of 18%. Management explicitly stated plans to refinance this loan in the coming financial year (FY26) to reduce the cost of funds and improve financial health. This move is part of a broader strategy to maintain a healthy debt-to-EBITDA ratio and fuel growth through accruals.
Capacity Utilization and Growth Outlook
The stainless steel facility is currently operating at approximately 60% utilization, which the company aims to increase gradually to an optimum level by leveraging existing assets. Management provided guidance for FY25 capacity utilization to be around 60%. For Q4 FY25, the company expects more robust volumes and top-line performance, aiming to be in line with the previous year's achievements despite the overall challenging steel industry scenario.