Rathi Steel's melting shop fell to 50% after management targeted 85%
Record FY26 revenue growth masks a puzzling operational reversal in the steel melting shop, where utilization dropped from 65% to 50% with no clear explanation.
What's new
- Q4 FY26 total income ₹244.57 cr, up 63.3% year-on-year.
- Steel melting shop utilization dropped to 50-52% from the 60-65% range reported in February.
- Direct charging technology is expected to deliver ₹4,000 per ton savings in the TMT rolling division.
Themes from the call
Backward Integration
The melting shop utilization decline contradicts management's February guidance of ramping to 80-85%, raising questions about whether volume growth is translating into integrated cost benefits.
Cost Efficiency
Direct charging technology promises ₹4,000 per ton savings, a 6-7% benefit on TMT selling price, but the technology is only partially deployed because melting output still lags rolling capacity.
Demand
TMT bar volumes surged 117% to 102,000 tons in FY26 on a restarted mill, with management guiding 20-25% average revenue growth for FY27.
Guidance watch
- Management is targeting 80% melting shop utilization 'going forward' but did not provide a timeline or explain the decline from the February range.
Risk flags
- The unexplained drop in melting shop utilization means the cost benefits management has cited may not materialize on the earlier timeline.
- Fuel costs have doubled over 2-3 months due to the Middle East situation, pressuring margins despite efficiency gains.
Key quotes
-
"We are expecting close to approximately 4,000 rupees per ton in savings in the rolling division."
— Udit Rathi, on direct charging technology ROI -
"We are actively working toward ramping up the utilization of our steel melting shop, which is currently operating at about 50-52%, toward nearly 80%."
— Rathi Steel management, June 2026 call
The brief
Rathi Steel's record FY26 numbers are real. Total income grew 41.7% to ₹716 cr, and PAT rose 39.24% to ₹12.87 cr. The TMT mill restart drove a 117% volume surge. But the company's operational narrative has a hole in it.
In February, management reported melting shop utilization at 60-65% and said they were targeting 80-85%. This quarter, the same facility is at 50-52%. That's a 10-15 percentage point drop from a range management had already achieved. No one explained why. The implications matter because Rathi's cost advantages, including the ₹4,000 per ton savings from direct charging, depend on higher melting shop output feeding the rolling mill. Right now, the rolling mill is running on purchased billets for part of its production.
The broader picture is that demand is there. TMT bars, now 40% of revenue, are seeing strong institutional and dealer uptake, especially in the premium 550D grade with its GreenPro certification. Management is guiding 20-25% revenue growth for FY27 on the back of this momentum. But the melting shop gap means the company isn't capturing the full margin upside it has promised from backward integration. Fuel costs have also doubled due to the Middle East conflict, making efficiency gains more urgent.
Rathi's thesis is premised on the margin expansion that comes from scaling both the melting and rolling shops together. This quarter, one side of the equation went backwards. Until management explains why, the cost savings story is incomplete.
Rathi Steel's growth is real, but its melting shop backslide needs an explanation before the cost savings thesis holds up.