Rationale

 The reaffirmation of the ratings of Aarti Steel International Limited (ASIL) continues to consider the long track record of the promoters in the steel business as well as its presence in the manufacturing of value-added products (rolled carbon, alloy steel, spring wires and tyre bead wires), commanding better realisation, along with a partially integrated nature of operations that supports the overall operating margin of the entity. The ratings also consider ASIL’s status as an approved supplier of steel products to the ancillaries of major automobile original equipment manufacturers (OEMs) and tyre manufacturers, which reduces the counterparty risk and provides revenue visibility. In FY2025, while the financial performance was impacted owing to a decline in realisations, the operating margin of the entity improved on the back of better cost management, lower raw material prices and healthy volume sales. However, the coverage indicators moderated because of an increase in the total debt position of the entity. The liquidity position also remained comfortable with cushions available in the working capital limits. In the current fiscal, the financial performance is expected to improve compared to the previous fiscal, led by higher volume sales in the wire division and decrease in power costs due to the ongoing solar power plant installation. In H1 FY2026, the company has already reported an operating income of Rs. 725 crore and an operating profit margin (OPM) of

10%. While reaffirming the ratings, ICRA has also considered the planned capital expenditure of Rs. 129 crore to set up the solar power capacity in the current fiscal. Once operational, the solar power unit is expected to provide significant cost savings in the overall power and fuel expenses, thus supporting the margins. The capex in the wire division has already been concluded, enhancing the capacity by 18,000 MTPA. While the capacity expansion was debt funded, the company has drawn only Rs. 87 crore compared to a sanctioned Rs. 112 crore. Also, the company has prepaid certain earlier term loans in the current fiscal, thus supporting the overall debt coverage indicators in near to medium term. The total debt/OPBDITA is likely to remain at 1.1-1.3 times in FY2026 and FY2027, supported by healthy accruals and limited borrowings compared to its net worth. The ratings, however, remain constrained by the company’s exposure to the cyclicality in the automobile sector from which ASIL derives a major part of its revenue, and the inherent risks of price fluctuations and cyclicality in the steel industry. ICRA also notes ASIL’s highly working capital-intensive nature of operations with significant receivables and stocking requirements with limited creditors, impacting its liquidity to an extent.