Ind-Ra lowers SAIL outlook to negative, affirms long-term rating at IND AA-

State-owned Steel Authority of India Limited (SAIL) said on Tuesday that India Ratings and Research (Ind-Ra) has revised its outlook to negative from stable while affirming its long-term issuer rating at IND AA minus.

The outlook revision reflects a sharper-than-expected increase in SAIL's leverage risks for the current financial year (FY20) and the uncertainty around financial deleveraging in FY21 to levels commensurate with the rating guidelines.

These risks have emanated owing to weakening of operating performance as reflected in the EBITDA (earnings before interest, tax, depreciation and amortisation) deterioration during H1 FY20, resulting from subdued market demand and inventory pile up.

Ind-Ra expects margins to firm up in H2 FY20 due to a fall in input prices and inventory normalisation, resulting from growth in demand. The agency said it will monitor recovery in profitability along with other measures in progress at SAIL to improve its operations and prevent deterioration in its financial risk profile.

SAIL's sales volumes are expected to remain flat at about 14.4 million tonnes in FY20 (FY19: 14.1 million tonnes) against the earlier expectations of about 15.5 million tonnes. At the same time, EBITDA per tonne (excluding other income) are likely to weaken to about Rs 5,000 over FY20. Ind-Ra expects SAIL's gross debt to remain flat in FY20 (FY19: about Rs 45,000 crore) as the company's annual capital expenditure and working capital requirements will largely stabilise during the year.

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