Credit ratings agency Fitch today downgraded its outlook on JSW Steel to 'Negative' from 'Stable' due to risk of further decline in product prices.
It also affirmed Long-Term Issuer Default Rating (IDR) at 'BB+' and the steelmaker's senior unsecured rating and the rating on its USD 500 million, 4.75 per cent senior unsecured notes due 2019 at 'BB+', the agency said in a statement.
"The revision in the outlook reflects the risk of further declines in pricing, which would make it difficult for the company to improve performance and reduce leverage," it said.
JSW Steel's financial profile weakened amid challenging conditions for Indian steel producers in 2015 and high debt levels as the company expands capacity, it added.
A key assumption of Fitch's rating case is that steel prices will recover modestly in the financial year ending March 31, 2017, in response to improving steel demand in India, it said.
The rating reflects the company's strong market position and highly efficient operations, which allows it to maintain low cost.
Fitch expects JSW Steel's financial profile to improve significantly in 2016-17 and 2017-18, 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.
The agency expects pressure on JSW Steel's profitability to continue in the near term. Indian steel makers have been battling an influx of cheaper steel, mainly from China and muted demand.
JSW Steel's consolidated blended EBITDA per tonne fell to Rs 5,328 (USD 82) during the six months ending September 30, from Rs 9,080 in the same period a year ago.
However, the government imposed a 20 per cent duty on imports of certain steel products from September 14, 2015 for 200 days, which has provided temporary relief to Indian steel producers.
"We consequently expect the company's blended EBITDA per tonne to improve during the second half of the current fiscal," it added,
However, Fitch expects Indian steel imports to remain high during 2016 and steel prices to continue to be low, and JSW Steel's EBITDA per ton is likely to remain below Rs 7,000.
The steel major's expansion of its capacity to 18 million tonnes per annum (MTPA), from 14 MTPA, is nearing completion. The firm expects to complete its expansion by the fourth quarter of the current fiscal.
