Hiking steel prices not enough for SAIL's turnaround: Report

Fall in steel prices since Jan'15 led to EBITDA losses for SAIL during the period & consequent worsening of its credit metrics

Raising steel prices by SAIL after the implementation of minimum import price will not help the country's largest steelmaker post a turnaround as benefits are for the short term, India Ratings and Research said Tuesday.

The ratings agency said that SAIL had raised steel prices by 10% after minimum import price (MIP) was imposed and is expected to raise them by another 5-10% in the current financial year.

The recent imposition of MIP on 173 steel products could alleviate the distress faced by steelmakers in the short term as the coverage has been wide and the duty has been defined in absolute terms, India Ratings and Research (Ind-RA) said in a statement.

"Around 80% of SAIL's products are covered under MIP and the company has effected price hikes of 10% post the imposition and a further hike of 5-10% is likely in 2016-17," it added.

It further said: "However, this will not be enough for a turnaround as steel prices corrected by 35-40% in 2015.

"Also, implementing sustained hikes in steel prices would remain challenging because of the commissioning of additional capacity of close to 12 million tonnes (MT) in 2016 and the MIP being currently valid till August 2016."

Ind-Ra today downgraded SAIL's Long-Term Issuer Rating to 'IND AA' from 'IND AAA' and the outlook is negative.

It said the downgrade reflects its credit metrics being lower than Ind-Ra's expectation for April-December of 2015-16.

The steep fall in steel prices since January 2015 led to EBITDA losses for the company during the period and the consequent worsening of its credit metrics, it added.

On SAIL's modernisation programme, Ind-Ra said: "Benefits of the capex are likely to be visible from 2-16-17. Till the benefits of increased capex begin to reflect by way of significantly higher volumes and improved efficiency, the leverage is likely to remain high."

The state-run firm is undertaking a capex of Rs 61,870 crore for upgradation (Rs 22,740 crore) and expansion (Rs 39,130 crore) of its facilities, it added.

An additional Rs 10,260 crore has been earmarked for augmenting raw material availability. At end-December 2015, Rs 69,080 crore of capex had been undertaken, which included regular maintenance capex, it said.

The agency said SAIL's net sales realisation (NSR) fell 16.7% y-o-y to Rs 33,252 per tonne in April-December of 2015-16 driven by a 29% y-o-y increase in imports, excess domestic capacity and moderate consumption growth of 4.7% y-o-y.

"Ind-Ra however expects the net realisation to increase by Rs 3,000-4,000 a tonne post the introduction of MIP for steel in India effective from February 2016," it added.