Rama Steel Tubes has received a rating update from ICRA Limited, with the credit rating agency placing the company's bank loan facilities on rating watch with developing implications. The rating action, communicated through ICRA's letter dated December 20, 2023, affects the company's total bank facilities worth ₹110.00 crores.

Rating Update Details

ICRA has placed both long-term and short-term facilities under rating watch following recent corporate developments. The rating changes are detailed below:

Acquisition Driving Rating Watch

The rating watch stems from Rama Steel Tubes' board approval on December 11, 2023, for acquiring 100% stake in UAE-based Automech Group Holding Limited. The acquisition details are structured as follows:

ICRA's Assessment and Concerns

ICRA expects the acquisition to provide strategic benefits including expanded Middle East presence and diversification into relatively high-margin engineering and fabrication segments. The transaction is anticipated to improve the company's revenue base and enhance earnings diversification over the medium term.

However, ICRA has identified several key concerns:

• Scale Impact: The transaction size is sizeable relative to Rama Steel Tubes' current scale
• Leverage Pressure: Debt-funded component could impact leverage and coverage metrics
• Execution Risks: Cross-border nature of the deal presents integration challenges
• Regulatory Factors: Pending regulatory approvals and financing arrangements require monitoring

Company Background

Rama Steel Tubes Limited, incorporated in 1974 by Mr. Harbans Lal Bansal, manufactures and trades steel tubes, pipes, and galvanised iron pipes. Currently managed by Mr. Naresh Kumar Bansal and grandson Mr. Richi Bansal, the company operates four manufacturing facilities located at Sahibabad (Uttar Pradesh), Khopoli (Maharashtra), and Anantpur (Andhra Pradesh) with total production capacity of 2,94,000 MTPA as of March 31, 2023.

The company maintains subsidiaries in UAE and Nigeria, with recent portfolio changes including the divestment of stakes in Hagar Mega Mart Private Limited completed in 2022. The product range includes MS ERW black pipes of 15mm-200mm diameter and galvanised iron pipes of 15mm-150mm NB in various sizes.

Rating Outlook

ICRA will closely monitor developments related to the transaction, including financing arrangements, regulatory approvals, and operational synergies. The rating agency indicated it will take appropriate rating action once greater visibility emerges on these factors. Automech Group's historically comfortable earnings are expected to provide support to consolidated profitability and debt protection metrics, offering some positive offset to the identified concerns.

Rama Steel Tubes Limited has officially announced its strategic acquisition of Automech Group, a UAE-based multi-award-winning provider of high-precision manufacturing services, for a total consideration of AED 296.00 million (approximately ₹728.00 crores). This transformative transaction marks the company's evolution from a leading steel tubes manufacturer to a solutions-led engineering powerhouse with significant presence across GCC and MENA regions.

Transaction Structure and Financial Impact

The share purchase agreement involves a three-party arrangement between Mr. Jagjit Gouri (Seller), RST International Trading FZE (Buyer 1), and Rama Steel Tubes Limited (Buyer 2). The acquisition is structured to leverage operational synergies and create substantial value enhancement.

Post-acquisition, the company expects consolidated total revenue to rise by over 113% from ₹1,065.00 crores in FY25 to approximately ₹2,200.00 crores by FY27E, with EBITDA margins improving significantly from 4% to 10%. Consolidated EBITDA is projected to increase by nearly 415%, from ₹46.00 crores in FY25 to an expected ₹236.00 crores in FY27E.

Current Financial Performance Comparison

The acquisition brings together two financially robust entities with complementary strengths and market positioning across different geographical regions.

Automech Group Operations and Capabilities

Automech Group, founded in 1991, operates as a diversified engineering conglomerate serving oil & gas, marine, energy, construction, and heavy industries across Gulf, MENA, South, and Southeast Asia regions. The group maintains API, ASME, and ISO-accredited facilities with ADNOC-approved vendor status.

Key Subsidiary Companies:

Strategic Rationale and Market Positioning

The acquisition combines Rama Steel Tubes' strong manufacturing base with Automech's advanced capabilities in precision machining, heavy fabrication, marine services, and dewatering solutions. This strategic move provides access to marquee clients and high-margin segments in infrastructure, energy, and industrial sectors.

Naresh Kumar Bansal, Chairman & Managing Director of RSTL, commented: "This acquisition is a defining milestone in RSTL's evolution from a leading steel tubes manufacturer to a solutions-led engineering powerhouse. By integrating Automech's world-class capabilities with our strong manufacturing foundation, we are creating a platform for sustainable growth across India and the GCC."

The transaction is expected to boost Rama Steel's standalone financials through shifting part of the production chain from Automech's UAE operations to domestic Indian manufacturing operations, along with proposed dividend and royalty payments from Automech to the parent company once operations are integrated.