Rathi Bars is in the business of manufacturing CTD/TMT steel bars and ingots/billets. The company hasn’t reported any significant growth in revenues over the last five years but reported reasonably stable operating profits considering the cyclical nature of its industry. It reported operating profits of about 11cr on revenues of around 210cr. The business, however, generates weak cash flows from operations as a result of high investment in its working capital. The business is subject to price rises in sponge iron – its main raw material. It is also dependent on steel industry cyclicality marked by periods of oversupply that has a negative impact on its profits. Management hasn’t declared dividends in any of the last five years presumably to ‘conserve resources’ – this policy appears inappropriate for a company that isn’t deploying funds for profitable growth.
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