Fitch Ratings lowers outlook on JSW Steel to negative from stable

Steel major's financial profile weak amid challenging conditions for Indian steel producers

Fitch Ratings has revised its outlook on Sajjan Jindal-led JSW Steel to negative from stable factoring in risk of further declines in pricing which would make it difficult for the steel producer to improve performance and reduce leverage.

JSW Steel's financial profile has weakened amid challenging conditions for Indian steel producers in 2015 and high debt levels as the company expands capacity, said the rating agency.

A key assumption of Fitch's rating case is that steel prices will recover modestly in the financial year ending 31 March 2017 (FY17) in response to improving steel demand in India.

The rating reflects the company's strong market position and highly efficient operations, which allow it to maintain low costs.

Fitch expects JSW Steel's financial profile to improve significantly in FY17 and FY18 with the benefits from capex driving higher sales volume and improvement in profitability. The better sales and profitability are key to maintaining the 'BB+' rating, it said.

In the near-term, the ratings agency expects pressure on JSW Steel's profitability to continue as domestic steel makers battle an influx of cheaper steel mainly from China and muted demand in the local market. JSW Steel's consolidated blended EBITDA per tonne fell to Rs 5,328 during the six months ending 30 September 2015 from Rs 9,080 a year earlier.

"We expect the company's blended EBITDA per tonne to improve during 2HFY16," said the agency following the 20 percent safeguard duty imposed by the government in September.

Fitch expects JSW Steel's profitability to improve modestly in FY17, supported by moderate improvement in Indian steel demand. However, we expect Indian steel imports to remain high during 2016 and steel prices to continue to be low.