About Rathi Steel & Power
Incorporated in 1971, Rathi Steel & Power operates a modern ~12.5 acre plant in Ghaziabad. Its steel melting capacity is ~85,000 TPA and rolling capacity is 200,000 TPA. Products include stainless steel billets, wire rods and bright bars, alongside stainless steel rebars and recommenced TMT bars. The company says it upgraded its manufacturing facilities with capex of INR 40 Cr.+ in the last 3 years, including direct charging of billets into rolled products.
Investment Rationale
- Turnaround and banking access: The company reports it became debt free as of 31-March’24 after restructuring and settlement of secured debt. In FY25, it regained banking relationships with fresh credit lines from Kotak Mahindra Bank.
- Capacity ramp-up potential: FY25 steel melting shop and rolling mill utilization were 61% and 24% respectively, according to the investment rationale. Management targets steel melting shop utilization of 80% and expects recommencement of the TMT bars facility to support rolling mill utilization.
- BIS-approved products: The company has BIS licenses/permissions for stainless steel reinforcement rebars and TMT rebars in grades Fe 500, Fe 550 and Fe 550 D of various dimensions.
- Direct billet charging: The company describes itself as a first mover in direct billet charging for stainless rods, which it says provides ~1.25%-1.5% savings in energy and yield.
- Asset value comparison: Using an average peer asset value of INR 13,427 per MT, the report derives a market capitalization of INR 383 Cr. and implied share price of INR 44/-. This is an asset comparison, separate from the report’s earnings-based target price.
Rathi Steel & Power Key Financials
| Particulars | FY23 | FY24 | FY25 | H1-FY26 | FY26 (P) | FY27 (P) | FY28 (P) |
|---|---|---|---|---|---|---|---|
| Op. Revenues | 727 | 493 | 503 | 312 | 604 | 725 | 869 |
| Rev. Growth % | 34% | (32%) | 2% | 25% | 20% | 20% | 20% |
| EBITDA | 32 | 21 | 22 | 12 | 26 | 40 | 52 |
| EBITDA % | 4.4% | 4.3% | 4.4% | 4.0% | 4.3% | 5.5% | 6.0% |
| PAT | 87 | 24 | 14 | 4 | 9 | 23 | 36 |
| PAT % (excl. exceptional) | 1.7% | 0.7% | 1.8% | 1.1% | 1.5% | 3.1% | 4.1% |
The report presents projections for FY26-FY28.
The table shows projected revenue growth of 20% in each of FY26, FY27 and FY28, with EBITDA margin rising from 4.3% in FY26 to 6.0% in FY28.
Valuation and Target Price
Minerva values the company at 14x FY27 PAT. Its base case uses INR 22.8 Cr. FY27 PAT and gives a target price of INR 37, with estimated upside of ~33% from the current price. The note also presents INR 20.5 Cr. PAT as a 10% discount to the base case and INR 25.0 Cr. PAT as a 10% premium to the base case.
- INR 27.8/-
- CMP
- INR 37
- Target price
- ~33%
- Estimated upside
Key Risks
- Steel and raw material prices: Revenue and operating margins are exposed to steel and raw material price volatility. Iron ore, met coke, steel scrap and ferro alloys account for around 75-85% of manufacturing cost.
- Brand ownership: The Rathi brand is owned by relatives/family rather than the company; any issue with its use could be a key risk.
- Competition and cyclicality: The steel industry is fragmented and unorganized, and the company faces competition from organized and unorganized players as well as the industry’s cyclical nature.
- Delhi NCR construction disruption: The report notes possible stoppages in construction activities in Delhi NCR during Q3 every year due to increased pollution or deteriorating AQI.
- Contingent liabilities: The report cites pending excise/service tax cases for principal amount INR 7.67 Cr., GST cases for INR 3.4 Cr., and civil/recovery suits and labor cases for INR 12.78 Cr., alongside multiple Income Tax and Sales Tax assessments. It warns that crystallization or adverse court outcomes involving key management personnel could negatively affect the company.
Our View
The valuation case depends on higher capacity utilization, margin improvement and the company’s ability to normalize working capital and lower finance costs. Minerva’s stated valuation is INR 37 per share, based on 14x FY27 PAT, with estimated upside of ~33%. Steel and raw material volatility, brand usage and contingent liabilities remain material risks.