Steelmakers To Slash Rs 35,000 Crores Debt

Primary steel producers are expected to reduce debt by 15%, or Rs 35,000 crore, between fiscals 2021 and 2022, using the higher operating profits generated for prepayment, CRISIL has stated.

"That, and a partial deferral of capex this fiscal will strengthen the balance sheets and credit metrics of five primary steel producers, which account for 55% of domestic production.

Domestic demand recovered strongly in the second half of this fiscal, growing 10% between October and January versus a 30% on-year fall in the first half. Consequently, demand contraction will be less than 10% for the whole of this fiscal. Higher infrastructure spending by government, and recovery in residential real estate are expected to improve steel demand by 10-12% next fiscal," the press release stated.

Says Manish Gupta, Senior Director, CRISIL Ratings, "So while the tailwinds to realisations from higher input costs and global prices could abate going forward, domestic demand growth would provide an offset. Consequently, realisation next fiscal may still be 15% higher than the average of the past five years. That, along with rising volumes and moderate coking coal prices would mean healthy operating margins of 23% next fiscal, compared with 25% likely this fiscal."

Says Naveen Vaidyanathan, Associate Director, CRISIL Ratings, "The five steel makers could cut Rs 25,000 crore of debt this fiscal. Next fiscal, despite capex rising 15%, they can slice debt by another Rs 10,000 crore. That would drive a sharp improvement in credit metrics with financial leverage (ratio of debt to Ebitda) declining below 2.5 times next fiscal compared with above 4.0 times in fiscal 2020."