Steel firms' performance to improve further on steady sales: India Ratings

Material deleveraging still a remote possibility for some steel players on the back of capacity expansion plans, leveraged buyouts of stressed assets

India Ratings expects the domestic steel industry's operational and financial performance to continue to improve, backed by steady sales realisations and higher margins -- supported by an improved demand-supply balance. 

  

The domestic steel sector will witness healthy global demand growth in the remainder of FY19, leading to an increase in the capacity utilisation rates, said the ratings agency in its report.  

Margin improvement in the near-term would be backed by operating leverage with higher volumes, as well as, to some extent, from the expected softening in coking coal prices, partly countered by inventory losses and steady steel prices on the back of strong demand.   

Increasing global trade protectionism could pose a risk to export margins; however, the exposure to exports is limited to about 10 per cent of the available capacity, it said. Further, the Indian steel industry will continue to enjoy protection from cheap imports under the anti-dumping duty.  

The operational performance of steel companies improved in FY18, aided by improved sales realisation amid robust demand. Most participants reported an improvement in the credit profile in FY18, said the agency.

Tata Steel, Sajjan Jindal-led JSW Steel, Naveen Jindal-led Jindal Steel & Power, state-owned Steel Authority of India and Rashtriya Ispat Nigam Limited (RINL) are among the top primary steel producers in the country.  

The financial year 2019 will be a year of sector consolidation, with a revival of stressed steel assets in a conclusive environment.  

The agency expects the sector participants to display mixed deleveraging trends, with a few large players pursuing inorganic growth to sustain high leverage and those with completed brownfield capacity expansion to deleverage in FY19. However, material deleveraging is still a remote possibility for some players due to their capacity expansion plans and leveraged buyouts of stressed assets, said India Ratings.