Indian steelmakers operating margins are set to fall by 200 basis points to 15% this fiscal year due to weak sales and profits amid the covid outbreak, according to rating agency CRISIL.
The volume of sales is expected to drop by high single digit percentage this fiscal as domestic demand evaporated in the first quarter in the wake of the covid-induced lockdown.
An expected recovery due to eased lockdown since July may not be strong enough to offset the first quarter’s blow, it added.
“Lower sales volumes and realisations will put pressure on the operating margins of steel producers this fiscal,” says Is ha Chaudhary, director at CRISIL Research.
Still the industry will be better off than the last downturn experienced four years ago,.when operating margins had dropped to a decadal low of 9%.
At that time the industry was swamped by low cost imports that forced the government to impose anti-dumping and a safeguard duty.
Domestic steelmakers are likely to defer nearly half of their capex plans this fiscal year, leading to fairly stable debt levels.
“We foresee a bounce-back in steel demand growth to double digits next fiscal because of likely government push to housing and infrastructure, and recovery in automobile sales,” says Naveen Vaidyanathan, associate director at CRISIL Ratings.