Basic credit analysis on a made-up steel company: compute net leverage, interest cover and free cash flow, then give an indicative rating band and outlook.

Net leverage is 3.11x, interest cover 3.21x and free cash flow only about Rs 27.5 crore, 0.9% of debt: an indicative BBB minus with a negative outlook. Leverage and cover sit in the BBB band near its weak end, free cash flow in BB. A 30% steel downturn would take net leverage to 4.44x. The outlook would turn stable once the expansion capex ends and free cash flow recovers.

A lender asks three questions of any borrower, the same ones a bank asks of a family seeking a home loan: how much do you owe against what you earn, can you pay the interest comfortably, and is there money left over at the end of the month? Net leverage, interest cover and free cash flow answer those three questions, and together they place a company in a rating band before any qualitative judgement. Net debt is Rs 3,200 crore less Rs 400 crore of cash, Rs 2,800 crore, so net leverage is 3.11x (3.56x gross). Cover is 900 over 280, 3.21x. Free cash flowCash left after operating costs, interest, tax and capex; what is available to repay debt or pay shareholders. is EBITDA of 900 less interest of 280, tax of 92.5 and capex of 500, about Rs 27.5 crore.

Two of the three ratios say BBB, but both sit close to the BB boundary, and the third is firmly BB. An agency rates through the cycle, so the question is where Ruvani would sit in a normal downturn, not in this year. Cut EBITDA 30% to Rs 630 crore and net leverage becomes 4.44x with cover of 2.25x: both in BB. That is why the indicative view is the bottom of investment grade rather than the middle. The thin free cash flow is mostly a choice: at maintenance capex of Rs 250 crore, free cash flow would be about Rs 278 crore, 8.7% of debt, in the BBB band.

The outlook says which way the rating is more likely to move in the next year or two. Negative here, because the committed expansion keeps free cash flow near zero while leverage is already near the top of the band, so a softening steel price has nowhere to go but the rating. Say what would change it: completion of the expansion with the new capacity earning, capex back to maintenance levels, or debt repaid from a slowdown in dividends would turn it stable. Close by saying the band grid here is illustrative; real agencies publish sector methodologies with their own thresholds and weight qualitative factors such as cost position and market share.