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Thursday, November 19, 2009

Rathi Steel & Power Ltd:Future growth outlook and prosepects,buy/sell/hold,news and views

Scripscan:Rathi Steel & Power Ltd

Story:Rathi Steel And Power Limited engages in the manufacture of rebars and wire rods for the construction industry in India. The company’s products include CTD and TMT steel bars for reinforced concrete constructions, such as buildings, bridges, reservoirs, roads, irrigation and power structures, dock and harbor structures, foundations, piles, and precast concrete. It also offers mild steel wire rods for use in various industries, including fasteners, bi-cycle parts, wire drawing, nails, and screw and other general engineering. The company markets its products under the name ‘RATHI’ to the government customers, retail users, and private sector customers. Rathi Steel And Power Limited, formerly known as Rathi Udyog Limited, was founded in 1972 and is based in Ghaziabad, India.I have downgraded the stock from hold to sell due to the deterioration in the liquidity profile of RSPL, which was evident from delays in meeting its debt obligations. The delays have arisen because of substantial debt-funded capex undertaken by the company for its backward-integration plant in Orissa coupled with moderate accruals from the plant in comparison to the debt-servicing requirement.My underperformer ratings were further constrained by the weak financial performance of the company over the last few quarters, lack of captive iron ore (which is critical to the profitability of operations) and the competitive nature of the industry, which are reflected in the relatively low operating margins and moderate debt protection indicators for RSPL.However, in the stock market, Rathi Steel has been shooting up.Going forward, timely servicing of debt obligations by the company and improvement in its financial performance will dictate its future price movement in the bourses.

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