Rathi Steel — Q3 FY25 earnings call

Call held 19 Feb 2025

Management summary

Rathi Steel reported a modest revenue increase in Q3 FY25, driven by volume growth despite soft stainless steel prices and volatile raw material costs. The nine-month performance was impacted by a strategic plant shutdown, but PAT saw significant growth. The company is focusing on product expansion with new BIS approvals, increasing capacity utilization, and refinancing high-cost debt in the upcoming financial year.

Highlights

  • Q3 FY25 Revenue stood at INR 104.43 crores, marking a 3.17% YoY increase.

  • Q3 FY25 EBITDA (excluding other income) was INR 3.0 crores, with a margin of 2.89%.

  • Q3 FY25 PAT was INR 0.53 crores, resulting in an EPS of INR 0.06.

  • 9M FY25 Revenue reached INR 353.58 crores, a 5.57% decline YoY due to a strategic plant shutdown.

  • 9M FY25 PAT significantly increased to INR 10.15 crores from INR 3.1 crores in the prior period, a 227.4% YoY growth.

  • The company aims to launch its full range of stainless steel rebars (8mm to 32mm) in Q1 FY26.

  • Capacity utilization for the stainless steel facility is currently around 60%, with plans to increase it gradually.

  • A high-cost working capital loan (18%) is targeted for refinancing in the coming financial year.

Concerns

  • Regulatory bans on construction due to pollution in NCR

Key financials

2 periods

Q3 FY25

  • Revenue
    ₹104.43 Cr
    YoY +3.2%
  • EBITDA
    ₹3 Cr
  • EBITDA Margin
    2.9%
  • PAT
    ₹0.53 Cr
  • EPS
    ₹0.06

9M FY25

  • Revenue
    ₹353.58 Cr
    YoY -5.6%
  • EBITDA
    ₹14.13 Cr
  • EBITDA Margin
    4%
  • PAT
    ₹10.15 Cr
    YoY +227.4%
  • EPS
    ₹1.19

What they filed

Q4 FY26: revenue up 63.4%, net profit up 96.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ1 FY25Q2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26
Revenue128 121 104 150 155 +22%156 +29%160 +53%244 +63%
EBITDA6 5 3 8 6 +3%6 +21%6 +110%10 +24%
Net profit3 7 1 4 2 −30%2 −77%2 +260%7 +96%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

low confidence
New inquiries have started coming in from various contractors for stainless steel rebars, especially for government projects related to construction over water, indicating an evolving market.

Source: Q&A

Capital allocation

high confidence
  • Capex ₹10 Cr accruals that we are generating
    • Cost optimization projects
    • Plant modernization projects
    We had earmarked about INR10 crores out of that fundraise for capital expenditure. We have almost utilized the entire amount, barring, almost more than 95% maybe. And those funds have been utilized to sort of complete two very important projects for us. The cost optimization projects, which has already started to yield good numbers, on a quarter to quarter basis, our energy costs have come down significantly. So and the other modernization project also has enabled us to sort of produce material, which is a part of what competitors do. Other than that, other than the INR10 crores capex that we sort of, the amount that we raised for the capital expenditure, we have incurred, we are continuously incurring more sort of money towards building up and modernizing our capital base out of the accruals that we are generating.
  • Debt Debt disclosed Cost 18%
    • Refinance Plan to refinance high-cost working capital loan at 18% in the coming financial year to bring down cost of funds.
    in terms of working capital loans, so we were almost debt-free at the end of FY24 and based on our annual report, I think we're availing a working capital loan at 18%.

Guidance & targets

Product Launch

  • Launch of full range of stainless steel rebars (8mm to 32mm) Product Launch · Q1 FY26 · High confidence Q1 FY26
    So we should be able to launch it in Q1, looking at the timelines, which I'm just discussing with you right now.

    — Udit Rathi

Capacity Utilization

  • Stainless steel facility utilization Capacity Utilization · FY25 · High confidence 60%
    my guidance for the capacity utilization for the stainless business has been around 60% for this year, which we will definitely we are quite, you know, aspiring to sort of achieve that.

    — Udit Rathi

  • Increase stainless steel facility utilization Capacity Utilization · Gradually · Medium confidence Optimum level
    We are presently running a stainless steel facility at approximately a utilisation of 60%, which we aim to increase further gradually to an optimum level by sweating out of our existing assets.

    — Udit Rathi

Debt

  • Refinance high-cost working capital loan Debt · Coming financial year · High confidence Reduce cost of funds
    We are definitely looking at, we aim to do this in the coming financial year, because you would appreciate once you start off a relationship with a lender out of the situation that we were into at that point in time, there was some sort of a commitment time period with the existing lender also, but that gets over soon. And we are - we'll be looking at doing it very soon in the coming financial year.

    — Udit Rathi

Revenue/Volume

  • Q4 FY25 Top line and volumes Revenue/Volume · Q4 FY25 · Medium confidence More robust, in line with last year
    the numbers, the volumes and the overall top line in Q4 is expected to be more robust. And we should be able to - we should be in line with what we achieved last year, in spite of the overall mutated scenario for the steel industry due to various external factors worldwide.

    — Udit Rathi

What to watch in Q4 FY25

Refinancing of high-cost working capital loan

Coming financial year (FY26)
Current 18% cost of debt
Target Reduced cost of funds

Why it matters

Successful refinancing will reduce interest expenses and improve profitability, a key step in financial health post-stress.

We are definitely looking at, we aim to do this in the coming financial year, because you would appreciate once you start off a relationship with a lender out of the situation that we were into at that point in time, there was some sort of a commitment time period with the existing lender also, but that gets over soon. And we are - we'll be looking at doing it very soon in the coming financial year.

Risks & concerns

  • Regulatory bans on construction due to pollution in NCR

    high

    Frequent bans on construction in the NCR region during Q3 due to high pollution levels significantly impacted demand for products.

    Management acknowledged

  • Raw material price volatility and soft finished product prices

    medium

    Raw material prices remained volatile, and stainless steel finished prices were soft, impacting margins.

    Management acknowledged

  • Infiltration of material from China and Southeast Asia

    medium

    Challenges for the industry due to material infiltration from China and Southeast Asia, leading to advocacy for protective measures.

    Management acknowledged

  • High cost of working capital loan

    medium

    The company is availing a working capital loan at 18%, which management plans to refinance.

    Analyst acknowledged

  • Temporary demand-supply imbalance from new entrants

    low

    New entrants in the industry are causing a temporary demand-supply imbalance, but management expects it to ease soon.

    Management downplayed

Q&A highlights

7 direct
Reasons for Q3 sales decline and lower revenue realizations Direct
So, that is why the sales realizations per ton have sort of been under pressure and have gone down. But the good part is that on a volume trajectory, we have been able to sort of, improve upon our overall volume of percent by almost 12%.

Management explained that while stainless steel prices were soft, volumes increased by 12%, and Q3 sales were also impacted by pollution-related construction bans in the NCR region.

Asked by Gauri Sahu

Raw material procurement and price volatility Direct
Major ingredients of our raw materials are largely procured from the domestic market. We do have some imports of scrap, but that is very, very nominal as compared to our overall raw material sort of charge.

Management clarified that most raw materials are sourced domestically, mitigating some import-related risks, but acknowledged volatility in scrap and ferroalloy prices.

Asked by Gauri Sahu

Industrial gases as a percentage of cost and current prices Direct
But overall, all three of these, all three industrial gases combined, I would say it would be in the range of around 1.5% to 2% of our overall cost, approximately.

Provided specific cost contribution and price ranges for key industrial gases, indicating a relatively small impact on overall costs.

Asked by Ojas Sawant

Impact of imports vs. domestic competition on Q3 demand weakness Direct
So, in Q3, as I said, the weakness in demand because of various frequent shutdowns with respect to construction activities here, that impacted the sort of demand in Q3. That was the major factor, which, because a larger part of our production is sold in the northern region.

Management attributed Q3 demand weakness primarily to local regulatory issues (construction bans) rather than imports or domestic competition, providing clarity on market dynamics.

Asked by Rikin Shah

Refinancing of high-cost working capital loan (18%) Direct
We are definitely looking at, we aim to do this in the coming financial year, because you would appreciate once you start off a relationship with a lender out of the situation that we were into at that point in time, there was some sort of a commitment time period with the existing lender also, but that gets over soon. And we are - we'll be looking at doing it very soon in the coming financial year.

Management confirmed plans to refinance the high-cost debt in the next financial year, which is a positive signal for improving financial health and reducing interest expenses.

Asked by Rikin Shah

Promoter's plan to increase stake in the business Direct
We are totally committed to the business, if the business requires us to pump in more equity. We are - our endeavor right now is to sort of fuel our growth from the cash flows that we generate.

Management expressed strong commitment to the business and willingness to infuse equity if needed, while currently prioritizing growth funding through internal accruals.

Asked by Rikin Shah

Launch timeline and market size for the full range of SS rebars (8mm-32mm) Direct
So, hopefully, by end of this quarter, we would have definitely applied by end of this quarter. Then the approval period, sometimes it takes time... So we should be able to launch it in Q1, looking at the timelines...

Provided a clear timeline for applying for and launching the full range of SS rebars, highlighting the evolving market driven by government projects for construction over water.

Asked by Rakesh

2 min read 6 chapters

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.

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