Top 5 steelmakers lowering debt by Rs 35,000 cr
Rising demand and higher prices will boost their operating margins by 23 per cent next fiscal, though down from 25 per cent this fiscal, leading to improved credit metrics for steelmakers, Crisil said.
Mumbai: Top five steelmakers in the country are set to pay back Rs 35,000 crore of debt, or 15 percent of their total borrowings, through the current and next fiscal years, a report said on Tuesday. Rising demand and higher prices will boost their operating margins by 23 per cent next fiscal, though down from 25 per cent this fiscal, leading to improved credit metrics for steelmakers, Crisil said in its report.
Debt cutting will also come from the savings they made in FY21 by partially deferring capex, which has further strengthened the balance sheets and credit metrics of five primary steel producers, which account for 55 per cent of domestic production, Crisil said.
Domestic demand recovered strongly in the second half of FY21, clipping at 10 per cent between October 2020 and January 2021 as against a steep 30 per cent on-year fall in the first half due to the pandemic. This will have demand contraction improving to under than 10 per cent for the whole of this fiscal.
Further aiding the sector is higher infrastructure spending by the government, and a recovery in residential real estate which are expected to improve demand by 10-12 per cent next fiscal. On the pricing side, domestic hot-rolled coil prices rallied to a multi-year high of Rs 56,000 per tonne in February from Rs 39,200 per tonne in March 2020 as demand improved amid iron-ore supply constraints and high global prices.
Since last month, however, prices have moderated with iron-ore supplies improving, and also because of the reduction in Customs duty announced in the budget. “The five steelmakers could cut Rs 25,000 crore of debt this fiscal. Next fiscal, despite capex rising by 15 per cent, they can slice debt by another Rs 10,000 crore.
“That would drive a sharp improvement in credit metrics with financial leverage declining below 2.5 times next fiscal compared to above 4 times in fiscal 2020,” said Naveen Vaidyanathan, an associate director at the agency.
The report is based on Tata Steel (including Bhushan Steel), JSW Steel, Steel Authority of India, ArcelorMittal, Nippon Steel India (erstwhile Essar Steel) and Jindal Steel & Power. While the tailwinds to realisations from higher input costs and global prices may abate going forward, domestic demand growth would provide an offset, said the report.
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