Rathi Steel's cost savings guidance plunged from ₹3,000-4,000/ton to ₹1.5-2/ton
In the same month, management first guided massive savings from hot charging, then slashed to near zero. Capacity expansion plans were also reversed.
What's new
- FY26 total income ₹716 cr, up 42% YoY; PAT ₹12.9 cr.
- Achieved debt-free status in March 2024.
- Current capacity utilization at 50-55% post-TMT restart.
- Product mix: 60% wire rods (5-6% margin), 40% TMT bars (2-2.5% margin).
Themes from the call
Demand
Infrastructure investment tailwinds across highways, railways, and renewable energy; Green Pro certification creating structural demand.
Margins
Margin compression from product mix shift; EBITDA margin on TMT bars just 2-2.5%, dragging blended margins.
Capital allocation
No capacity expansion capex planned; maintenance capex ₹10-15 cr; refinancing at 16% borrowing cost to bring down.
Guidance watch
- 20% CAGR growth target over 2-3 years, subject to market conditions.
- Hot charging commercialization for TMT bars; timeline unspecified.
- Refinancing to lower borrowing cost from 16% to market rates.
Risk flags
- Dramatic downward revision in cost savings guidance (₹3,000-4,000/ton to ₹1.5-2/ton) undermines management credibility.
- Capacity expansion reversal within the same month raises concerns about strategic clarity.
- Negative working capital due to debt service stress; working capital normalization uncertain.
- Utilization at 50-55% leaves limited room for margin improvement until volume increases.
Key quotes
-
"I'm expecting approximately INR4,000 per ton saving in the Rolling division."
— Rajesh Jain, President of Finance and Corporate Affairs, Jun 2026 call -
"By implementing this, we will save on fuel and scaling losses, which will amount to approximately 1.5 to 2 rupees per ton."
— Rajesh Jain, President of Finance and Corporate Affairs, later Jun 2026 summit -
"We aim to grow at a CAGR of 20 percent, subject to market conditions."
— Rajesh Jain, President of Finance and Corporate Affairs
The brief
Rathi Steel & Power is a turnaround story that just contradicted itself twice in the same month. Management first guided for ₹3,000-4,000 per ton in cost savings from a new hot charging technology in its TMT mill, then said savings would be just ₹1.5-2 per ton — a collapse from thousands to rupees. Separately, they shifted from evaluating capacity expansion to denying any plans beyond maintenance. The revenue story is solid: FY26 income rose 42% to ₹716 crore, PAT ₹12.9 crore, and the company is debt-free. But the guidance gap raises a fundamental credibility question. The cost savings numbers were the key margin driver investors were underwriting. Now that driver is essentially zero. Capacity utilization sits at 50-55%, so volume growth offers potential for margin improvement, but the product mix shift toward lower-margin TMT bars (2-2.5% EBITDA margin) is compressing blended margins. Management targets 20% CAGR growth, but without capacity expansion or clear cost improvements, the path is unclear. Working capital remains negative from years of debt service, and borrowing costs at 16% are elevated. Rathi's Green Pro certification and just-in-time positioning in North India are real advantages, but they don't replace missing margin guidance. This concall was meant to present a turnaround. Instead it presented two different versions.
Rathi Steel's turnaround story needs a consistent script. This quarter it got two different ones.