Detailed Rationale

Crisil Ratings has assigned its ‘Crisil A+/Stable’ rating on the long-term bank facilities of Rashmi Green Hydrogen Steel Pvt Ltd (RGHSPL; a part of Rashmi group).

 

The group is a pioneer in the secondary steel segment with total capacities exceeding 36 million tonnes as on January, 2025 across different product lines ranging from intermediaries to finished products. It has an established market position backed by diversified customer profiles, healthy operating efficiency supported by integrated operations and strategic locations of manufacturing units, and the longstanding experience of promoters in the steel sector. 

 

The group is one of the largest players in the DI pipe segment with total DI pipe manufacturing capacity of around 11,20,000 metric tonnes per annum (MTPA) as on January, 2025 along with integrated manufacturing capacities across pig Iron, sponge iron, coke amongst others.

 

The rating reflects improvement in business risk profile of the company with revenue of Rs 28,550 crore in fiscal 2024 exhibiting 33% growth as against the previous year owing to healthy order flow and healthy volumetric growth on the back of robust demand scenario. The company has continued its growth momentum in fiscal 2025 with revenue recorded of around Rs 30,000 crore in the first eleven months and estimated revenue of around 33,000 crore for the whole fiscal backed by sustained volumetric growth as observed over the past few fiscals driven by healthy steel demand scenario as well as fast ramp up of operations in enhanced capacities. Rashmi is expected to improve its revenue profile over the medium term backed by a healthy outstanding order book for the next 6-9 months in the ductile iron (DI) pipe segment which provides healthy revenue visibility and healthy capacity utilization and benefits to be availed from enhanced capacities in other product lines which shall in turn support healthy volumetric growth amid sustenance of healthy demand scenario from end-user segments. Operating efficiency remains supported by increased economies of scale, healthy finished product realisations amid healthy demand and moderated raw material prices (coking coal and iron ore) with healthy adjusted return on capital employed (ROCE) expected around 20% over the medium term supported by negligible reliance on external working capital debt. Operating profitability is expected to be sustained at an improved level of 17.50-18% over the medium term backed by moderated input prices and better economies of scale through increased scale of operations and will remain a key monitorable.

 

The rating continues to reflect sustained healthy business risk profile of the group on account of sustenance of healthy operating efficiency driven by integrated operations along with healthy market position thereby backing robust operating performance in fiscal 2024 as well as the first eleven months of fiscal 2025. The financial risk profile continues to remain robust, too, supported by sustenance of robust capital structure on the back of negligible debt despite continuous enhancement of capacities, healthy debt coverage ratios and strong liquidity profile.

 

In fiscal 2024, consolidated revenue stood healthy at ~Rs. 28,550 crore and EBITDA of over Rs 5,000 crore (Rs 3,285 crore in fiscal 2023), with stable operating margin of ~ 17.55%. Steady volume sales and healthy capacity utilisation with commencement of additional capacity shall support revenue growth going forward as well supported by steady realisations. Profitability during the period was supported by robust volumes amidst healthy demand scenario, moderation in raw material prices and increased benefits of backward and forward integration. Going forward, with increasing capacities, better product diversity, moderating input prices (especially energy prices) and expected rise in the share of finished steel in sales mix, operating profitability is expected to remain healthy with EBITDA margins expected over 17.50-18% over the medium term and will be a key monitorable.

 

The ratings remain underpinned by robust financial risk profile and ample liquidity. The group has sustained negligible debt status despite adding sizeable capacities and showcasing significant growth in scale over the last few fiscals with consolidated adjusted gearing of around 0.15 time while interest coverage and net cash accrual to total debt ratios were more than 10 times for fiscal 2024. Liquidity is marked by healthy unencumbered cash and liquid investments and further supported by management’s intention of maintaining liquid investments of over Rs. 1000 crore going forward.

 

Crisil Ratings understands that the management will continue to fund the ongoing capex (expected growth outlay to be around Rs 8,000-10,000 crore over fiscals 2026-2028) through internal accrual (expected to be more than Rs 5,000 crore per annum), with limited reliance on external debt. Hence, financial risk profile will remain strong over the medium term.

 

The ratings reflect the established market position of the group in the steel sector, diversified product and customer profiles, healthy operating efficiency supported by integrated operations and strategic locations of manufacturing units, and the longstanding experience of the promoters in the steel sector; the ratings also factor in the comfortable financial risk profile backed by healthy debt protection metrics. These strengths are partially offset by vulnerability to fluctuations in raw material and finished goods prices, exposure to inherent cyclicality as well as competitive and capital-intensive nature of the steel industry.

Analytical Approach
Crisil Ratings has notched up the standalone rating of RGHSPL based on the expectation of strong support from the ultimate parent, Rashmi Metaliks Limited (RML), as RGHSPL is a wholly owned subsidiary of RML effective from fiscal 2025 onwards. This is in line with Crisil Ratings’ criteria for notching up standalone ratings of companies based on parent support.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position:  The Rashmi group is one of the largest players in the steel and steel intermediates industry in Eastern India. The promoters have been associated with the steel industry for over four decades and have established forward as well as backward integrated operations. Combined capacities increased to over 36 million tonnes per annum (MTPA) as on January, 2025. Diversified product mix includes pellets (~7% of sales in 9MFY2025), sponge iron (~26%), pig iron (~7%) billets (~16%), TMT (thermo mechanically treated) bars and structural products (~18%), DI pipes (~14%) amongst others. Market position is marked by substantial growth in scale of operations backed by robust volumetric growth through enhanced capacities, group being in continuous expansion mode and healthy demand scenario. Group has recorded a healthy consolidated turnover of over Rs 28,550 crore in FY2024 and is looking well poised to close fiscal 2025 at over Rs 33,000 crore with Rs 30,000 crore turnover already recorded till 11MFY2025. The growth in turnover shall be backed by volumetric growth expected over 30% in FY2024. Led by infrastructural push, given accrued benefits from operationalization of recent capacity expansion, and planned capacity addition going forward over the next couple of fiscals backing volumetric growth, revenue growth is expected to remain healthy over the medium term. Also, expected moderation in raw material prices (especially iron ore and coal) going forward and diversified product profile will provide cushion against reduced steel prices and support operating profitability.
   
• Healthy operating efficiency driven by integrated operations and prudent working capital management: Operations of the group are integrated with presence across the steel value chain (from pellets to long products as well ductile iron and seamless pipes). As such, integrated nature of operations and extensive experience of more than four decades of the promoters in the industry continue to support healthy profitability. Apart from the benefits derived from the value chain, the group is supported by its presence in railway siding and captive power plant segments. Furthermore, its flexibility in terms of customer base, captive consumption, and outside sale requirements; helps maximise realisations and profitability. Consolidated EBITDA margins for the group stand estimated over 17.55% in fiscal 2024 marked by increased operational efficiency through benefits derived from integrated operations and increased contribution of value added products to overall revenue. Healthy capacity utilisation levels across different product lines despite continuous addition to capacities on the back of healthy demand scenario and volumetric growth shall also support operating efficiencies resulting in steady profitability and Return on Capital Employed (RoCE) for the group. Profitability will be supported by low power cost of Rs 2.5-3 per unit (captive power now meets 100% of the group power requirement), improving product mix, healthy proportion of high margin products such as ferro alloys, TMT, DI pipes, pellets amongst others and moderated input prices. Moreover, bulk procurement of raw material such as coal and close proximity to raw material sources help in cost saving. As such, operating margin is expected to remain healthy around 17.50-18% over the medium term. Extensive experience of promoters and their close monitoring of the working capital cycle has ensured prudent working capital management over the years, limiting dependence on external debt for working capital. The strong accrual generation ability and prudent working capital management should also result in positive cash-flow from operations for the group going forward. Crisil Ratings expects operating margin to remain healthy over the medium term with blended EBITDA per tonne of over Rs 4,500.

 

Working capital management has been prudent. The group sells mainly on advance/letter of credit basis, leading to low receivables of 15-30 days. Inventory, at around 45-60 days, mainly comprises raw materials. While the group does not have captive iron ore mines, its proximity to raw material sources and setting up of railway siding gives it access to iron ore at competitive rates because of lower logistics cost, thereby supporting profitability.
 

• Robust financial risk profile, expected to sustain despit: e ongoing capex: The financial risk profile should continue to remain robust over the medium term supported by steady accretion to reserves. Consolidated networth of the group stands robust estimated at over Rs 20,000 crore crore as on December 31st, 2024 (stood at ~Rs 16,675 crore as on March 31st, 2024) and is expected to increase over the medium term backed by steady accretion to reserves. Capital structure also remains strong marked by negligible gearing and total outside liabilities to tangible networth (TOL/TNW) ratio expected around 0.10-0.15 time and 0.20-0.30 time respectively going forward, thereby enhancing financial flexibility. Financial risk profile is expected to remain strong despite large capex planned over the medium term. Consolidated capex of ~Rs 8,000-10,000 crore over fiscals 2026-28 is to be funded largely through annual cash accrual expected over Rs 5,000 crore per fiscal, the same should continue to support healthy debt protection metrics and strong capital structure. Debt protection metrics continue to be strong, with interest coverage and net cash accrual to adjusted debt (NCA/AD) ratios at healthy levels in FY2024 and expected to remain healthy going forward supported by healthy profitability generation. Larger-than-expected debt-funded capex or acquisition weakening debt metrics and capital structure will remain monitorable.
   

Weaknesses:

• Exposure to inherent cyclicality and slowdown in end-user industry: Demand for the products of the group, such as TMT bars and ductile iron pipes , is linked to the capex plans of end-users such as the civil construction, real estate and engineering industries, which are cyclical. Slowdown in capex in these segments may impact the performance of the group. Changes in government policy on import/export also affect the industry.

 

• Vulnerability to volatility in the prices of raw material and finished goods: In addition to demand risk from end-user industry, the industries remain exposed to volatility in raw material prices (such as iron ore and coal) and finished product realisations, which can impact operating margin. The prices are largely subject to global commodity prices. However, this is partially offset by the integrated nature of operations, flexibility in changing revenue mix between steel and steel intermediates, ferro alloys and power, and strong ability to pass through any change in raw material prices to customers. To maintain market share, industry participants have to routinely carry out capacity expansion and debottlenecking activities.

 

Any significant reduction in demand and prices adversely impacting operating margin and cash accruals of the group will remain a key monitorable.

Liquidity: Strong

Bank limit utilization of fund based limits of the overall group is moderate around 41 percent for the past 12 months ended December, 2024. RGHSPL relies on its net cash accrual generation for its working capital requirement in the absence of any fund based limits. Amidst negligible term debt, the entire cash accruals of the overall group, expected at over Rs 5000 crore per annum – will aid financial flexibility. In RGHSPL, expected net cash accruals of around Rs 15 crore in fiscal 2025 and around Rs 50-100 crore per fiscal is expected to be sufficient against nil term debt repayment obligations over the medium term. In addition, it acts as an adequate source of financing for the on-going capex and cushions incremental working capital requirement. Positive cash flow from operations and healthy unencumbered liquidity in the group cushions liquidity of the group and provides the necessary financial flexibility. Moreover, management’s intention of maintaining liquid investments over Rs 1000 crore going forward further support liquidity despite continuous capex being undertaken by the group. Healthy support from promoters in the form of unsecured loans or equity infusion shall be available if needed.

Outlook: Stable

Rashmi group will continue to benefit from its established market position, robust demand and integrated nature of operations, thereby ensuring healthy cash generation. The financial risk profile is likely to remain healthy, driven by conservative capital structure with future capex plans funded by internal cash generation and strong liquidity.

Rating sensitivity factors

Upward factors:

• Healthy operating performance with continued volume growth supported by high capacity utilisation; and sustenance of healthy operating margin of over 17% due to increased integration leading to significant and sustained improvement in scale of operations as well as net cash accruals.
• Sustenance of healthy financial risk profile with no material debt funded capital expenditure (capex) or acquisition, along with healthy operating cash accruals supporting comfortable debt metrics along with healthy liquidity levels

 

Downward factors:

• Deterioration in operating performance due to weakened demand and intense competition, leading to significant decline in operating profitability, thereby reducing cash accruals below Rs 2000 crore per fiscal
• Larger-than-expected capex or acquisition resulting in material increase in leverage (net debt/EBITDA) and thereby weakening of financial and liquidity risk profile, on a sustained basis

About the Group

The Rashmi group, based in Kolkata, was formed in 1991 with the incorporation of RCL and is promoted by Mr Sajjan Kumar Patwari and his family members. RML was incorporated in 2004 to increase the spread in the steel industry. OMPL was incorporated in 2006 but started operations from fiscal 2016 when some of the assets were sold to it by RML for better operations management. The group has been in the iron and steel industry for over four decades and currently has total capacities of over 29 million ton with diverse product range across the steel value chain right from iron ore pellets to TMT and DI Pipes. The group manufactures iron pellets, sponge iron, billets, wire rods, DI pipes, Low Ash Metallurgical Coke (LAM coke), sinter, pig iron along with ferro alloys and the group also has captive railway sidings to ensure operational and business integration.  The group has captive power plants and a waste-heat recovery boiler to generate power that is used for captive consumption thereby meeting 100% of its power requirements. Manufacturing units are located in Kharagpur and Jamuria, West Bengal

 

Rashmi Green Hydrogen Steel Pvt Ltd (RGHSPL) is engaged in the manufacturing of seamless pipes and ductile iron pipes (DI) pipes with a manufacturing capacity of 1,62,000 metric tonne per annum (MTPA) and 3,30,000 MTPA respectively. While the seamless pipe capacity has started operations, the ductile iron pipe segment is expected to commence operations from April, 2025 onwards. It is promoted by Mr. Sajjan Kumar Patwari and his family and derives significant support from its group companies, being a part of Rashmi Group.

Key Financial Indicators* (Consolidated)

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	28550	21006
Reported profit after tax (PAT)	Rs crore	3439	2712
PAT margin	%	12.05	12.91
Adjusted debt/adjusted networth	Times	0.17	0.14
Interest coverage	Times	22.51	19.17

*Crisil Ratings adjusted numbers

 

Key Financial Indicators* (Standalone)

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	88.35	--
Reported profit after tax (PAT)	Rs crore	0.56	0.61
PAT margin	%	0.63	--
Adjusted debt/adjusted networth	Times	--	352.26
Interest coverage	Times	5.48	(1.86)

*Crisil Ratings adjusted numbers

Any other information: Not Applicable