Rathi Steel And Power Ltd (BSE: 504903) Q3 2025 Earnings Call dated Feb. 19, 2025
Corporate Participants:
Udit Rathi — Promoter
Shyam S Bageshara — Vice President, Accounts and Taxation
Analysts:
Gauri Sahu — Analyst
Ojas Sawant — Analyst
Rikin Shah — Analyst
Rakesh Roy — Analyst
Namit Arora — Analyst
Aditya Shah — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Rathi Seal and Power Limited Q3 and 9 months FY25 earnings conference call. This conference call may contain forward looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant line will be in listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Udit Rati, promoter Rati Seals and Power Ltd. Thank you. And over to you sir.
Udit Rathi — Promoter
Hi. Good afternoon everyone. I would like to wish you a very warm welcome to Rathi Steven Powers conference for the third quarter and nine months, 31 December 2024.
I would like to begin by expressing my gratitude to all of you for taking the time to join us today. We have on call with us Mr. Shyam who is the Vice President of our company. Along with Add Factors, our investor relationships company. We also have Mr. Kushal Agarwal and Mr. Rajiv Kumar, our newly appointed CFO who are also going to be participating in this conference along the way.
We are at a very very important juncture in a growth story as the company is undergoing significant transformations. Since this is only a second earnings call, I would like to share a brief background about our company and some key recent developments before we get into the business and financial performance.
The Rathi Group goes all the way back to 1940s when the group started by setting up a small rerolling mill in Delhi. Through the next decades, couple of decades, the business grew steadily under the leadership of our founder Shipunam Sanji Rathi who brought six decades worth of experience in steel making and rolling industry. The company Rathi Cheerim Power, earlier known as Rathi Udyan Limited was incorporated in the year 1971 and started off its journey with a small mill in Ghaziabad in the state of uttar Pradesh.
In 1973 we did our first public offer followed by two rights issues through 1993. During this time we adopted the curve technology and we were the pioneers and one of the leaders and the few companies in India to be doing so. Over the next few years we adopted latest technologies in the industry and we set up our stainless steel facilities in Ghaziabad around the year 2006. Seven alongside, we also set up an integrated steel plant with a captive power plant in the state of Odisha.
As part of our continuous endeavor to optimize our operations, we have undertaken various modernization projects over the years. Today I’m proud to say that we have state of the art special steel making facility at Gazyadad spread across approximately 12 acres in the heart of Ghaziabad. Our product portfolio currently comprises of stainless steel billets, stainless steel long products and also our capability to roll mild steel as well as stainless steel rebuy. Now we also manufacture stainless steel flat products in very small quantities at the moment. Over the years we have carved out a niche for ourselves in the market and established a leading position in the industry in the businesses that we cater to.
Today the Darthi brand is synonymous with quality, consistency and reliability. We are proud to say that Raati is a preferred brand for a lot of infrastructure and construction projects spread across ncr. Moreover, we have a distribution network catering to a large retail segment spread all across the Northern India region.
Now speaking about some of the recent key developments, I would like to I’m very pleased to share that recently we have received a license from BIS to use stainless steel to use the BIS standard mark on stainless steel rebars which we are soon going to be launching. We have got this approval right now for a particular diameter which is a 32mm diameter which basically caters to our higher end of the spectrum which is kind of not a very easy sort of grade to make. But with the competence we have been able to successfully get this approval.
Going forward we plan to expand our product range in the same category by getting the approval for a thinner diameter catering to an entire range from 8mm to 32mm which will make our launch of this product more effective. Over the last few quarters. We have also completed our cost optimization project and also our plant modernization project. In spite of a challenging scenario for the industry, our cost optimization project has already started to yield cost benefits going forward. As I had earlier also mentioned, we are looking at setting up of downstream facilities, but at the moment we are taking a conscious view on it, looking at the overall scenario to improve a bit before we go forward aggressively.
On that front, we are presently running our stainless steel facility at approximately a utilization of 60% which we aim to increase further gradually to an optimum level by sweating out of our existing assets. Once we are able to do so, then we will look at possibilities of expanding our facilities further. Talking of our numbers now and overall industry scenario, I would like to mention that while raw material prices have remained very volatile and the stainless steel finished prices have remained soft, our demand, the domestic demand pickup has enabled us to maintain and rather improve our overall volumes on a year to year basis. On a Q2Q comparison. However, there remains a number of challenges for the industry. There remains a number of challenges for the industry with respect to a lot of infiltration of material coming in from China and Southeast Asia.
To address this challenge, we are actively engaging with industry bodies and policymakers to advocate for protective measures like it is being done by a number of countries. I’m sorry, by a number of countries. Overall, we are strategizing to enhance our capacity utilizations and expand the product basket by keep adding value added products. We are well positioned today to capitalize on the growth opportunities and continue on our growth journey at Rathi 2.0. While doing so, we shall remain focused on delivering sustainable value for our stakeholders. Just to give you a fine tune of the numbers for Q3 and nine months ended.
I would like to hand over to Mr. Shyam who would be able to elaborate on the same and then I will be pleased to take any further questions.
Shyam S Bageshara — Vice President, Accounts and Taxation
Good evening to everyone. Coming to the number for third quarter, we reported the sale of revenue of rupees 104.43 crores during the quarter three at 3.17 year on year increase despite relatively lower realization and these growth volumes helped us increase the top line figures. Our EBITDA excluding other income for the quarter stands at rupees 3.0 crore. Vice versa rupees 6.1 crore includes 24 while EBITDA margin stood at 2.89%. Softness in stainless steel prices coupled with volatility in raw material prices offset the impact of energy efficiency meters thereby damping the margins. Margin or margins are under pressure. Our spike during the quarter is 0.53 crores as against rupees 0.79 crores in third quarter of FY24 as margin stood at 0.5%. EPS for this quarter is at rupees 0.6.
Comparing the other expenses for Q24, Q3 and 2425 which are marginally on the lower side because of also set off in quarter on account of graded response grade imposed by the honorable air condition in NCR region due to high pollution level as explained by Mr. Rathi.
Now coming to the nine month figure for FY24 our revenue for these nine months came at 353.58 crores. Vice versa rupees 374.47 crore in previous corresponding period. This was primarily due to strategic planned shutdown for a modern migration project during the first quarter. Our EBITDA excluded other income for nine months and it stands at 14.13 crores while EBITDA margins remain flattish at 4%. Volatility in raw material prices and softness in stainless prices offset the benefit of cost efficiency measures. Our CAT during The period reached Rs. 10.15 crore as against 3.1 crores in nine months. FY24 at margin stood at 2.87%. EPS for this period is rupees 1.19 and this is all from outside and part of revenue and figures. Thank you.
Udit Rathi — Promoter
We are open now to take up questions. Please.
Questions and Answers:
Operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue you may press star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Gauri Sahu who is an individual investor. Please go ahead.
Gauri Sahu
Hello. Am I audible?
Operator
Yes ma’am.
Gauri Sahu
Yeah, my first question was regarding our sales. So our sales have been not good and the revenue realizations have come down. So can you explain why?
Udit Rathi
Yeah. Hi Gauri. So basically our sales, if we compare our sales on a quarter on quarter basis we are at a sort of a flattish level. We’ve been able to sort of maintain or improve upon the sales by 3 odd percent but there has been a reasonable improvement in the in the volumes on a quarter on quarter basis. The stainless steel prices have been under pressure so that is why the ton have sort of been under pressure. We’ve 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 10%.
Gauri Sahu
Okay, so do you expect this to recover in coming 2, 3/4?
Udit Rathi
I’ll just clarify a bit on it. So what has happened is that in the NCR region where we operate and there are larger part of our customers are there is due to a very high pollution level which happens around Diwali basically. Q3 the Honorable Air Commission which is appointed by the government of India to sort of monitor and take steps to mitigate the pollution levels in the NCR region. They come out with graded response action plans under which they have imposed frequent bans on construction in the NCR region and as a result of which the products that we manufacture directly, indirectly have a lot of application in building and construction space as a result of which the Q3 numbers are mutated.
Now this has been a phenomena for the last several years because this body has been in place for the last few years. And we expect now this, although this looks like a seasonal phenomena, but with the government’s impetus now to sort of curtail the level and take measures to curtail the levels of pollution going forward, the winter months, you know, in the coming years. Once that is sort of addressed, this seasonality impact also is likely to come down now. So this has had a major impact on the overall business environment for these steel industries operating in this region in Q3 going forward, we definitely expect sales figures and the demand to be a little more robust in what it has been and we expect to cover up some space there.
So my guidance for the capacity utilization for the stainless business has been around 60 odd percent for this year, which we will definitely, we are quite, you know, aspiring to sort of achieve that. And going forward then obviously we’ll be looking at further growth.
Gauri Sahu
Okay, understood, understood. Thank you. And the second question I have was regarding raw materials. So from where do we procure our raw materials? So are we seeing any pressure from on the raw material prices?
Udit Rathi
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. So of course, you know, scrap prices would be with the fluctuation in currency prices, we are cautious at what we are looking at to book further. But since largely our — are sort of comfortably fed by the domestic raw material, that is domestic crab and domestic ferros, there is not much of a challenge there with respect to procurement. Of course the prices of ferroloids also have been very, very fluctuated because our sort of suppliers use larger part of their sort of raw materials is imported. So that is driven by a number of global factors. So situation has been a little fluctuated, but there is no sort of scarcity or any dearth of procurement of raw materials.
So our focus going forward would be that, you know, would definitely look at growth volumes and increase the market share. And once we sort of achieve and increase upon our operating levels, the capacity utilization, we will need economies of scale to help us, you know, sort of add up or improve upon our operating margins also. But right now the focus would be to ramp up capacity utilization going forward.
Gauri Sahu
Okay. Okay, understood. Thank you. Thank you for your question.
Operator
Thank you. The next question is from the line of Ojis Savan from Hingtong Securities. Please go ahead. Yes, sir. You’re audible.
Udit Rathi
Yeah, it’s better now.
Ojas Sawant
Yeah. So like, we understand that gases like argon are critical input, you guys. So like, you know, can you please share, you know, how much would it constitute as a percentage of your total cost or your total, say zero. And what are the current price gases?
Udit Rathi
You mean the industrial gases like argon, oxygen, nitrogen.
Ojas Sawant
Yeah.
Udit Rathi
Yeah. So those are important, but we have a, we have a good tie up for that. So larger part of our oxygen and nitrogen is met through one of our suppliers who’s very listen to our plant. So we installed actually from plant to our plant, which sort of helps us to cut down on our transportation costs and also the storage constraints as well as the sort of the evaporation losses quite a bit. So other than oxygen and nitrogen, Argan is another product which you rightly pointed out, which remains stable for a larger part of the year. But during summer months, the prices of argan do become a little fluctuated. Argon for the grades of stainless steel that we make is not a very significant contributor. But overall, all three, 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.
Ojas Sawant
Hello.
Udit Rathi
Yeah.
Ojas Sawant
Yeah, so can you just highlight on, you know, what is the current price for gas?
Udit Rathi
The current price of gases.
Ojas Sawant
Hello, can you just highlight. And prices gain. Oxygen and nitrogen.
Udit Rathi
Yeah, so the current prices of gases would be in the range of around 11 to 12 rupees per standard meter cube. For oxygen. Nitrogen also would be in the same range and RGS could be in the range of around 50 to 55 rupees.
Ojas Sawant
Okay, thank you. That’s it from my side.
Udit Rathi
Yeah.
Operator
Thank you. The next question is from the line of Freken Shah from the Boring ams. Please go ahead.
Rikin Shah
Hi. So I just wanted to understand, you know, was the weakness in terms of demand which you highlighted or part of the cause for weak sales in Q3 or, you know, we also had some imports to deal with, like what do you know, hampered with the sales.
Udit Rathi
Sir, 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. So the business in demand was a major factor. I mean, there was no sort of major factor of import which affected our operations as an overall. Which the industry has been logging and has been sort of voicing. Imports is an overall concern. But as such it did not have any sort of any additional impact on Q3 as such. So if I compare Q2 or let’s say the first part of the year versus Q3, so the sluggishness is an account of the. Of a seasonality issue which we face, which I sort of explained before. But yes, imports are sort of disturbing the overall margins for the industry.
Rikin Shah
Okay, so no domestic competitor would have for pricing.
Udit Rathi
Sorry?
Rikin Shah
No domestic competitor would have spoiled pricing in this time, in this quarter maybe.
Udit Rathi
Domestic competitor would not have spoiled any prices. But in the industry or in the space that we operate, there have been a couple of acquisitions of plants or companies which were under ibc. Of course, certain large entrants have did those acquisitions about in the last two years or so. I’m sure that I would say I would look at it in a positive manner because obviously people entering into this space means that there is a growth opportunity. But as in, when a few entrants do enter and they sort of scale up, there is a temporary phenomena which does impact the overall demand supply situation. But our products are, I would believe they are. We are. The demand is growing because of a normal growth of the steel demand and also because stainless steel products is replacing a lot of carbon steel applications. So I see a trigger in demand from that angle also. So I’m hoping and I’m pretty confident that these temporary phenomenas will get eased out soon.
Rikin Shah
All right. And in terms of working capital loans, so we were almost debt free at the end of FY24 and you know, based on our annual report, I think we’re availing a working capital loan at 18%. So considering the shape and health that we’re in, balance sheet wise, would it not make sense to refinance this high cost loan?
Udit Rathi
So we are definitely looking at doing that and we also have to appreciate the fact that the company bounced back from a situation of stress. So we bounced back from a situation where, where at some point in time the debt levels were unsustainable and as a result of which our loans with the lenders became non performing. But with the sort of asset sale measures and operational efficiencies and restructuring, we were able to come out of the issues. So looking at the legacy issues that we had, we thought it appropriate sort of, you know, come back and bounce back with the banking relationship, which we did. And of course the endeavor and the idea was to either, you know, bring down the cost of fund with the existing vendor or look at refinance options.
Rikin Shah
So it’s something you’re looking at. But are you, you know, do you have a reasonable timeline in your mind by when, you know, it could be realistically possible to bring this down?
Udit Rathi
We are definitely looking at, we aim to do this in the coming financial year. You would appreciate, once you start off a relationship with the lender, out of the situation that we were into at that point in time where 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.
Rikin Shah
All right. In terms of promoter stake, we still had a healthy 40%. But looking at, you know, the current juncture we’re at, are we planning to increase stake in the business?
Udit Rathi
We are totally committed to the business. The business requires us to pump in more equity. We are, we are. Our end goal right now is to sort of, sort of fuel our growth from the cash flows that we generate. That’s the best way and that’s the best way of giving returns or reward to all the existing shareholders. But if the company requires us to pump in equity, we stand totally committed and we will at that point of time, arrange, try and arrange capital and infuse into the company.
Rikin Shah
Got it. And lastly sir, could you please help us with Q4 guidance?
Udit Rathi
So I had given a guidance of an overall annual number which is going to be, which is likely to be close to what we achieved last year. And I just sort of answered, you know somebody a couple of questions back that we will, you know, the Q3 being mutated due to the reasons which I explained. So 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 overall mutated scenario for the steel industry due to various external factors worldwide.
Rikin Shah
Got it. That’s all from my end. Thanks.
Udit Rathi
Thank you.
Operator
Thank you. The next question is from the line of Rakesh from the boring amc. Please go ahead.
Rakesh Roy
Yes sir. My first question regarding sir, can you we get the different permission for SS Barna, sir. So when you start this one SS 550.
Udit Rathi
So basically the entire spectrum of products means a diameter of around 8mm to 32mm. We got the approval for the higher end of the spectrum. Now we are taking measures to expedite and take approval for the lower end of the spectrum so that the entire range is in order. We have more or less completed the work which was to be done at the plant to roll out all sizes. So once we get the approval for the lower end of the spectrum 8mm it would, we thought, you know, we discussed with the marketing team that would make more sense to sort of, you know, launch it more effectively. So that is what we are looking at.
So hopefully by end of this quarter we would have definitely applied. By end of this quarter then the approval period, you know, spends, it takes time which is beyond our control. We are you know looking at probably it normally takes about a month and a half to sort of get the approval in normal due course. So we should be able to Launch it in Q1. Looking at the timelines which we, which I’m just discussing with you right now.
Rakesh Roy
Okay. And then how much is the market size for this one from 8 to 32 bar and where we sell retail or distribution of tanks.
Udit Rathi
Sir, this is very. If you look at our presentation we have given, the government has. Is putting a lot of impetus on it especially in the coastal area wherein they are. They have made it mandatory for a number of government projects to be using this material instead of the carbon steel rebar on the bridges etc which are being built on water because it leads to a much larger life for looking at the saline atmosphere. It also enhances of course safety to our next level and the life cycle impact cost is also less. So it is an evolving market. I don’t have exact numbers of a market size right now but all that I know is that new inquiries have started to come in from various contractors for this because as I have been told that slowly and steadily this is becoming a new norm for a lot of government projects by NACI and even Railway Board for their sort of construction over water. So that is one area wherein I think it is an evolving market.
On the other hand, as I’ve spent out earlier, we plan to leverage our existing brand value and retail network which we’ve had sort of, you know, which is a strong legacy that we have. We plan to leverage that to roll out and to explore a possibility to roll out stainless steel rebars in the retail space as well. That is a very, very exciting and a new area which we are looking at and we probably to the best of my knowledge as of now we will probably be one of the very few or one of the only ones in India to be launching it comprehensively in retail space.
Rakesh Roy
Right, right. And how many any player is there more like Rakhi Jindal also there then any other place in same line of business.
Udit Rathi
So same rebuys I think about seven to eight plants or companies have or maybe little more they’ve already got approvals. I’m not sure if they. If all of them sort of COVID the entire range, the entire spectrum of the sizes. I’m not very sure about it but few of them definitely would be having those approvals and those are the ones who are sort of, you know, supplied to these projects which are opening up and. But I don’t think other than maybe Jimbal Stainless to a certain extent. I’m not sure if anybody is sort of aggressively pushed it into or made an effort to push it in the retail space.
Rakesh Roy
Okay sir, any new value added product we are going to just launch or we are going to add in our portfolio.
Udit Rathi
Yeah, so we are constantly looking at, you know, constantly trying out and looking at adding sort of critical grades of virods in our portfolio. As I had sort of, you know, announced a couple of months back about our ending to go into a downstream project. So that is also under planning stage. You know, our technical team is evaluating various options. So that is a regular endeavor which we will be looking at doing in times to come.
Rakesh Roy
Thank you sir.
Udit Rathi
Thank you.
Operator
Thank you. The next question is from the line of Namit Arora from Ingrowth Capital. Please go ahead.
Namit Arora
Yes, thank you for the opportunity sir. My question for Uditji was around risk management. Now clearly the company has bounced back from a tough phase but have there been any key learnings for you over the last few years and some policies or thoughts on risk management? I know the mining issue in Orissa etc, but in general some thoughts of trying to strengthen the company’s risk management system going forward. Thank you.
Udit Rathi
Yeah, so it’s been this tough journey has had a lot of sort of. It has given me a lot of learning. We are definitely going to be very, very prudent about the external borrowings that we will have and we want to drive, at least for the next couple of years, drive the growth of the company through accruals and as I said in a few minutes back that the promoters stand absolutely committed to sort of support company by way of equity inclusion if requ and we will be looking at various fundraiser opportunities if that is what is required to be done.
The tough period that we went through has sort of taught us a lot about very, very minute cost controls. So we have internal systems in place wherein we treat day to day operations of the plant as a cost center which is monitored very minutely and only the surpluses are sort of plowed back for building up capital assets and growth. So we’d be very cautious of our overall capital structure and not look at sort of a scenario of growth which would again entitle us to sort of borrow beyond sort of, you know we would like to maintain a very healthy debt to EBITDA ratio in mind.
Namit Arora
Got it. Thank you for your detailed thoughts Udhiji and all the best to the entire team.
Udit Rathi
Thank you.
Operator
Thank you ladies and gentlemen. You may press Star and one to ask a question. The next question is from the line of Aditya Shah from Meteor Wealth Management. Please go ahead.
Aditya Shah
Hello sir. So just a couple of few questions. Steel being a very capital intensive sector, what is your current capex and what is the CAPEX plan for the next few years? The current capex as in capital expenditure and the outlook for it for the next few years? I want to know that sir.
Udit Rathi
Yeah, so we, we did the fundraise that we did last year sometime about, about 12 months before sometime in February last year we had earmarked about 10 crores out of that fundraise for capital expenditure. We have almost utilized the entire amount barring almost three tenths of 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 is already started to yield good numbers, you know, 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, which is at par with what competitors do. Other than that, other than the 10 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 approval that we are generating. So that is largely being done because you know, our plants etc have, you know it is an old setup and it continuously requires revamping in order to be efficient. And because of, because of the stress that we were facing a few years back we were not able to deploy the kind of money that we would have liked to. But now we are, we are continuously expenditures to keep the health of the plant in good condition.
Aditya Shah
Okay sir. And the next question is like for what is the strategy for raw material procurement given the volatility in the commodity prices?
Udit Rathi
So what. We are definitely very cautious of imports. Larger part of our raw material consumption sort of overall raw material procurement is from the domestic market and ideally, though, it’s not possible every time. But what we try to sort of do is that we try to hedge our position of depending on the kind of order that we have in hand or the projected order that we may sort of have in hand for our finished products. We try and cover at least the critical raw materials. To that extent, looking at the selling price of, you know, the product that we are selling. As I said, it’s not, it’s not, it’s not ideally possible for any producer, producer because of the various, you know, the volatile nature of the market itself to do that. But we definitely keep watch on it and we try to hedge it to the extent possible.
Aditya Shah
Okay, and my last question sir, regarding technology and automation. Like does your plant, how much percentage of a plant works on technology and automation and, and how much do you spend annually to upgrade these technology and automation part of it?
Udit Rathi
So it’s. Most of our plants have been modernized but as I said, due to the lack of capital expenditure in the last few years, we are continuously putting money to upgrade our facilities. But I don’t see a major gap in the technology and automation vis a vis what is required in the industry. So of course if you talk of a new greenfield project altogether, then those gaps would be large to fill up. But with small capital expenditures and upgradations that we keep doing, we are pretty much at par with what the industry requires as per the industry parameters.
Aditya Shah
Okay, so that’s it. Thank you for my side and all the best.
Operator
Thank you. Thank you ladies and gentlemen. You may press star and one to ask a question. As there are no further questions from the participants, I would now like to hand the conference over to Mr. Udit Rati, promoter Rati Steel and Power Ltd. For closing comments.
Udit Rathi
Yeah. I once again thank the entire team of Rakhi for their untiring efforts, hard work and dedication which drives the company forward through various market conditions. Also, I would like to thank all of you for participating in our conference call. Please do get in touch with our investor relationship team for any further questions. Thank you so much.
Operator
Thank you. On behalf of Rati steel and Power Ltd. That concludes this conference. Thank you for joining us and you may now disconnect your lines.