Crisil Rating in a recent report opined that India’s primary steel producers are expected to reduce debt by about 15% or INR 35,000 crore, between fiscals 2021 and 2022, using the higher operating profits generated for prepayment. Crisil added that a partial deferral of capex this fiscal will strengthen the balance sheets and credit metrics of five primary steel producers, which account for 55% of domestic production. CRISIL Ratings Associate Director Mr Naveen Vaidyanathan said “The primary steel makers could cut about INR 25,000 crore of debt this fiscal. Next fiscal, despite capex rising by about 15%, they can slice debt by another INR 10,000 crore. That would drive a sharp improvement in credit metrics with financial leverage (ratio of debt to Ebitda) declining below 2.5 times next fiscal compared with above 4.0 times in fiscal 2020.” CRISIL Ratings Senior Director Mr Manish Gupta said “Domestic hot-rolled coil prices rallied to a multi-year high of about INRs 56,000 per tonne in February from INR 39,200 per tonne in March 2020 as demand improved amid iron-ore supply constraints and high global prices. Since last month, however, prices have moderated with iron-ore supplies improving, and also because of the reduction in customs duty announced in the Union Budget. So while the tailwinds to realisations from higher input costs and global prices could abate going forward, domestic demand growth would provide an offset. Consequently, realisation next fiscal may still be about 15% higher than the average of the past five years. That, along with rising volumes and moderate coking coal prices would mean healthy operating margins of about 23% next fiscal, compared with about 25% likely this fiscal.” Crisil added “Domestic demand recovered strongly in the second half of this fiscal, growing by about10% between October and January versus a 30% on-year fall in the first half. Consequently, demand contraction will be less than 10% for the whole of this fiscal. Higher infrastructure spending by government and recovery in residential real estate are expected to improve steel demand by 10-12% next fiscal.”
Crisil Rating in a recent report opined that India’s primary steel producers are expected to reduce debt by about 15% or INR 35,000 crore, between fiscals 2021 and 2022, using the higher operating profits generated for prepayment. Crisil added that a partial deferral of capex this fiscal will strengthen the balance sheets and credit metrics of five primary steel producers, which account for 55% of domestic production. CRISIL Ratings Associate Director Mr Naveen Vaidyanathan said “The primary steel makers could cut about INR 25,000 crore of debt this fiscal. Next fiscal, despite capex rising by about 15%, they can slice debt by another INR 10,000 crore. That would drive a sharp improvement in credit metrics with financial leverage (ratio of debt to Ebitda) declining below 2.5 times next fiscal compared with above 4.0 times in fiscal 2020.” CRISIL Ratings Senior Director Mr Manish Gupta said “Domestic hot-rolled coil prices rallied to a multi-year high of about INRs 56,000 per tonne in February from INR 39,200 per tonne in March 2020 as demand improved amid iron-ore supply constraints and high global prices. Since last month, however, prices have moderated with iron-ore supplies improving, and also because of the reduction in customs duty announced in the Union Budget. So while the tailwinds to realisations from higher input costs and global prices could abate going forward, domestic demand growth would provide an offset. Consequently, realisation next fiscal may still be about 15% higher than the average of the past five years. That, along with rising volumes and moderate coking coal prices would mean healthy operating margins of about 23% next fiscal, compared with about 25% likely this fiscal.” Crisil added “Domestic demand recovered strongly in the second half of this fiscal, growing by about10% between October and January versus a 30% on-year fall in the first half. Consequently, demand contraction will be less than 10% for the whole of this fiscal. Higher infrastructure spending by government and recovery in residential real estate are expected to improve steel demand by 10-12% next fiscal.”
