Rationale

 To arrive at the ratings, ICRA has considered the consolidated operational and financial profiles of Ajay Steels Private Limited along with four other Group companies - API Ispat and Powertech Private Limited (API; rated at [ICRA]AA-/Stable and [ICRA]A1+), Real Ispat & Power Limited (RIPL; rated at [ICRA]AA-/Stable and [ICRA]A1+), Shivalay Ispat and Power Private Limited (SIPPL) and Real Ispat and Energy Private Limited (RIEPL; rated at [ICRA]AA-/Stable and [ICRA]A1+) - because of the managerial, operational and financial linkages among these Group companies. RIEPL has been incorporated by the Group for a greenfield capex, and there is likely to be significant fungibility of funds between RIEPL and the above Group companies. Hence, ICRA has included RIEPL for a consolidated rating view. The rating reaffirmation continues to consider the long track record of the Real Group in the steel business as well as the Group’s integrated nature of operations with operational linkages among the Group companies. Besides, the presence of captive power plants (CPPs) positively impacts the cost structure. ICRA notes the proximity of the Group’s plants to iron ore and coal mines and the bulk import of coal through ASPL, which renders raw material security. The ratings also draw comfort from the Group’s robust financial profile, reflected in its healthy cash accruals, a conservative capital structure and strong debt coverage indicators on a consolidated basis. The average steel realisations moderated in FY2024 from the levels seen in the previous two fiscals, impacting the operating margins for the year. However, lower coal and iron ore prices during the year partially offset the impact of subdued realisations with the Group reporting a consolidated OPBITDA of ~Rs. 347 crore vis-à-vis ~Rs. 385 crore in FY2023. ICRA expects the company’s sales volumes to remain healthy in the near to medium term on the back of steady demand expected from the end-user industries. Also, the sales realisation continued to be muted in the current fiscal till date, which is likely to constrain the operating margins to an extent. The movement in steel prices in the second half of the current fiscal would be crucial in determining the overall margins of the Group. Further, the ratings will continue to be constrained by the Group’s exposure to the cyclicality inherent in the steel industry. The ratings also factor in the progress of the ongoing capex in RIEPL to enhance backward integration and fully integrate the Group’s operations. So far, RIEPL has commissioned a direct reduced iron (DRI) plant of 2,00,000 tpa and a 20-MW waste heat recovery (WHR) CPP in March 2024, and the same is expected to improve the cost structure in the current fiscal. A major improvement in the cost structure is expected from the commissioning of an 8,00,000-tpa pellet plant in Q1 FY2026 as it will significantly reduce the Group’s dependence on external pellets and iron ore lumps. ICRA also notes that the overall capex costs have increased by ~Rs. 350 crore with change in the project scope (infrastructure being set up for 1 mtpa capacity). However, the Group’s strong financial flexibility, the sizeable free cash available with it and a large buffer in the working capital utilisation mitigate the funding risks in relation to the capex. Nevertheless, the Group would remain exposed to the risks associated with the execution of the project within the budgeted cost and estimated timeframe. The Stable outlook on the [ICRA]AA- rating reflects ICRA’s opinion that the overall financial risk profile of the Group is likely to remain healthy, despite its sizeable ongoing capex.