| Experienced management and established track record of operations
Established as a private limited company in 1992, RIL transitioned to a public limited company in 2007, accumulating over 25 years of operation within the iron and steel sector. Presently being managed by Mrs. Rashmi Devi Patwari, who boasts decades of industry expertise, the company has leveraged the promoters’ experience to cultivate strong relationships with both customers and suppliers. The company also generates 4MW captive power plant and hence not dependent on external power, rather supplying its surplus power to West Bengal State Electricity Board (WBSEB). Under the able management, the company is setting up an 8MW Captive power plant (CPP; cost of Rs. 76 Cr. already incurred in past but not made operational earlier) with a billet manufacturing unit for forward integration at a project cost of Rs. 41.10 Cr. to be operational by April 2025. This is expected to augment the business risk profile of the Company. Acuite believes that RIL will further enhance its business risk profile in the medium term by capitalizing on the substantial industry knowledge of its promoters.
Steady scale of operations albeit declined revenues in FY 24
The operating income of the RIL stood at Rs.343.03 Cr. in FY24 as against Rs.373.10 Cr. in FY23. The marginal decline was due to volume driven growth being offset by correction in average prices of sponge iron. The capacity utilizations have increased on account of increase in volume sold. Further, the company has achieved Rs. 278.44 Cr. till December 2024. The capex plans of billet manufacturing unit and power plant are expected to enhance their operational efficiencies and topline. The EBITDA margin stood at 3.60 percent in FY24 as against 3.56 percent in FY23. The marginal increase was due to a decline in raw material prices. The price reduction helped the company to maintain inventory stocks and book raw materials in advance for maintaining production. The PAT margin stood at 1.29 percent in FY24 as against 1.23 percent in FY23. The marginal improvement was due to lower interest costs. EBITDA and PAT margins stood at 4.43% and 2.02% respectively till December 2024. Acuite believes the scale of operations will be improved over the medium term backed by commencement of capex plans.
Moderate Financial Risk Profile
The financial risk profile of the company is marked by reducing but healthy net worth, comfortable gearing, and comfortable debt protection metrics. The tangible net worth of the company stood at Rs.111.34 Cr. in FY 2024 as compared to Rs 116.90 Cr. in FY2023. Despite accretion to reserves, the extent of quasi capital decreased from Rs. 15 cr. to Rs.5 cr, resulting in overall reduction in the net worth. Acuite has considered Rs.5.00 crore of unsecured loan as quasi capital as the amount is subordinated with bank debt as on March 31, 2024. The gearing of the company stood at 0.37 times as on March 31, 2024. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 0.44 times as on March 31, 2024. The debt protection metrics of the company remain comfortable marked by Interest coverage ratio (ICR) of 3.81 times and debt service coverage ratio (DSCR) of 2.27 times for FY2024. Acuite believes the financial risk profile will remain moderate due to debt funded capex plan.
Moderate Working Capital Management
The working capital management of the company is moderate marked by Gross Current Assets (GCA) of 75 days for FY2024 as compared to 72 days for FY2023. The moderate level of GCA days were mainly on account of inventory days. The inventory days of the company stood at 56 days in FY2024 as against 53 days in FY2023. The company maintains inventory of raw materials for ~2 months and for finished goods over 30 days. RIL sells its finished goods on advance basis. Further, the debtor days of the company stood similar at 1 day for FY2024 and FY2023. Moreover, the GCA days of the company emanates from the other current assets, which mainly consists of advances provided to suppliers of Rs.6.57 Cr. and balance with statutory authorities of Rs. 4.05 Cr. Against this, the creditor days stood at 4 days in FY24 as against 2 days in FY23. Acuité believes that the working capital operations of the company will remain at the similar levels over the medium term.
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| Exposure to cyclicality inherent in steel industry
Steel is a cyclical industry, strongly correlated to economic cycles since its key users i.e., construction, infrastructure, automobiles and capital goods are heavily dependent on the state of the economy. Fall in demand in any of these sectors directly impacts the demand of steel products. The steel industry is sensitive to the shifting business cycles, including changes in the general economy, interest rates and seasonal changes in the demand and supply conditions in the market.
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