CRISIL upgrades credit ratings of JSPL; revises outlook to 'positive'

Jindal Steel & Power (JSPL) said that CRISIL Ratings has upgraded its long-term rating on the bank facilities of the company to 'CRISIL A+' from 'CRISIL A-', while revising its outlook on the same to 'positive' from 'stable'.

The credit ratings agency has also upgraded its short-term rating on the bank facilities of JSPL to 'CRISIL A1+' from 'CRISIL A2+'.

CRISIL Ratings said that the upgrade reflects a stronger-than-expected operating performance of JSPL and expectation of faster deleveraging. Consolidated financial leverage (ratio of consolidated net debt to EBITDA) is expected to be below 1.5 times in fiscal 2022 against earlier expectations of below 2.0 times, driven by improved operating profitability outlook due to healthy steel demand and higher steel prices.

Consolidated leverage sharply reduced to 1.6 times as on March 31, 2021, against the earlier expectation of below 2.3 times, due to stronger-than-expected surge in steel prices in the second half of fiscal 2021 along with access to pre-paid, low-cost iron ore.

The upgrade also factors in improved liquidity risk profile, reflected in cash & equivalents (including unutilised fund-based limit) of Rs 3,000 crore as on 30 June 2021 (less than Rs 1,000 crore as on 31 March 2020) along with management articulation to maintain cash liquidity of more than Rs 2,000 crore at all times.

The announced capacity expansion plan of 6 million tonne per annum (MTPA) at Angul (to be undertaken under Jindal Steel Odisha [JSOL]) will not result in any material increase in JSPL's consolidated leverage as the increase in project debt at JSOL will be offset by debt repayments at JSPL.

While JSPL's management has demonstrated its ability to set up large steel plants over the past years, timely completion of the upcoming expansion project without any cost overrun and successful ramping up of operations shall remain key monitorables.

The 'positive' outlook reflects CRISIL Ratings expectation of sustained healthy operating performance, driven by robust domestic steel demand and realisation in the near to medium term, which should support continued deleveraging.

Furthermore, the positive outlook factors in JSPL's recent announcement to sell entire stake (96.4%) in its subsidiary, Jindal Power (JPL) to a promoter group entity, Worldone, for cash consideration of Rs 3,015 crore, along with transfer of all the assets and liabilities related to JPL.

On successful completion, the deal will remove the financial linkages and management control between JSPL and JPL and will reduce JSPL's consolidated debt by more than Rs 6,000 crore, in addition to the cash proceeds. This would boost the financial risk profile of JSPL, the ratings agency said.

JSPL is an industrial powerhouse with a dominant presence in steel, power, mining and infrastructure sectors.

The company's consolidated net profit declined 73.5% to Rs 41.81 crore on a 62.8% rise in net sales to Rs 10,628.80 crore in Q1 FY22 over Q1 FY21.

The scrip rose 0.07% to currently trade at Rs 401.35 on the BSE. It had traded in the range of 399.90 and 402.95 so far during the trading session.

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