Fitch Ratings has affirmed Steel Authority of India Limited's Long-Term Foreign Currency Issuer Default Rating at 'BBB-' with Negative Outlook and its National Long-Term rating at 'Fitch AAA(ind)' with Stable Outlook.

The ratings reflect SAIL's leadership in the domestic steel industry with an established brand, strong credit metrics, a presence in almost the entire range of mild steel products and its large reserves of quality iron ore. It also derives substantial cost benefits from its 68% captive power generation through its own and joint venture power plants.

SAIL's ratings also reflect a favorable outlook on its products given growth in the domestic infrastructure, auto and white goods sectors. However, slower growth in India could constrain domestic steel demand. The lack of self-sufficiency in coking coal remains a risk, as the company imports 70% of its coking coal requirements.

SAIL is implementing a large INR 700 billion capex program scheduled to be completed by the financial year ending 31 March 2013, for the expansion and modernization of its steel plants and mines development. The capex will increase SAIL's crude steel capacity to 21.4 million tonnes from the existing 13.4 million tonnes. However, SAIL is experiencing time overruns in capex implementation, having only spent INR 403.22 billion until end March 2012 and committed to incur a further INR 120 billion in FY13.

Fitch expects SAIL to improve its profitability post CAPEX with improved plant efficiency, more productive use of iron ore fines and an increased share of value-added steel in the product mix. However, its profitability will continue to be impacted by volatility in coking coal prices as evident in past financials.

Source - Thomson Reuters

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