Consolidated debt of steel industry at 9-year low on robust earnings: Icra

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September 03, 2021 6:45 AM

The industry’s consolidated borrowings now are at their lowest levels since March 2012.

steelThis suggests that domestic steel companies are now significantly less leveraged than in FY’2009, when the last steel supercycle ended, following the global financial crises,” it said.

The domestic steel industry’s consolidated debt narrowed to a nine-year low of Rs 2 lakh crore as of July-end 2021, rating agency Icra said on Thursday, revising the sector’s outlook to ‘positive’ from ‘stable’.

“Given the strong earnings growth and capex curtailments following the pandemic related uncertainty, steelmakers started to aggressively deleverage since the second quarter of FY2021. This trend is reflected by the industry’s consolidated debt levels declining to Rs 2 lakh crore in end-July 2021, from Rs 2.6 lakh crore in end-July 2020, registering a sharp decline of over 21% in a short span of a year,” Icra said.

The industry’s consolidated borrowings now are at their lowest levels since March 2012.

“On taking a closer look at the industry’s consolidated borrowing per metric tonne of installed capacity, it stood at $180 in July 2021, shrinking by almost half from $350 prevailing in November 2008. This suggests that domestic steel companies are now significantly less leveraged than in FY’2009, when the last steel supercycle ended, following the global financial crises,” it said.

The agency said benefitting from a low base and improved demand from several steel-consuming sectors, domestic consumption to grow at around 12% in the current fiscal. Last fiscal, consumption saw a 7% contraction over the previous fiscal. “The steel production growth in FY’22 is likely to be higher at around 14%, getting traction from the increasing trend in net finished steel exports,” said Jayanta Roy, senior VP & group head, corporate sector ratings, Icra.

“Our assessment indicates that net exports are expected to increase to around eight million tonne (MT) in the current year from six (MT) in FY’21, as domestic mills try to increase their export footprint, given the opportunity to fill up the vacuum left by the Chinese mills due to the Government’s curbs,” Roy added.

On the supply front, from JSW Steel and NMDC, eight MT of new capacities are expected to hit the market in the current year to take the installed capacity to 150 MT, but the same is likely to be absorbed by incremental steel consumption of 12 MT expected in FY’22. This will lead to revising the industry’s capacity utilisation rates to 78% in FY’22 from 72% in FY’21. Within that, the leading mills however are expected to operate at a significantly higher capacity utilisation.

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