Moody’s Investors Service today said it has downgraded JSW Steel’s corporate family rating (CFR) and senior unsecured notes ratings to Ba3 from Ba1.
The outlook on all ratings remains negative, the agency said in a statement.
“The two-notch downgrade reflects JSW’s weaker than expected operating performance as a result of persistently weak steel prices and our expectation that this low steel price environment will continue over the next 12 to 18 months,” said Moody’s Vice President and Senior Analyst Kaustubh Chaubal.
JSW’s results for the nine months of the fiscal year ending March 2016 (April-December 2015) were extremely weak, the global ratings agency said.
“Moody’s remains concerned about the persistence of downward pressure on steel prices with the continuation of imports into India from China, Korea and Japan.
“Such imports — on volume basis — were up 30 per cent for April-December 2015 from the same period last year despite the implementation of protectionist measures against imports,” it added.
As a result, Indian hot rolled coil (HRC) prices fell 24 per cent during the third quarter of the fiscal year ending March 2016, prompting JSW’s blended realisations to fall to Rs 28,263 per tonne from Rs 37,327 a tonne a year ago.
EBITDA per tonne fell more sharply by 51 per cent in the said quarter to Rs 3,443 compared to last year’s Rs 6,987.
While JSW has undertaken several measures to reduce costs, conserve cash flow, and minimise the rise in debt, the severe drop in steel prices has strained earnings and increased leverage.
Looking ahead, the agency said it expects an increase in the company’s shipments with commencement of the incremental 4 million tonnes per annum (MTPA) brownfield expansions and the continued growth of retail sales through the expansion of its shoppe outlets — both benefiting from relatively strong domestic demand.
“As a result, we estimate leverage to improve in FY 2016-17, although it will still be weakly positioned for the rating,” it added.