Indian steel firms to cut Rs 35,000 crore debt between FY21 and FY22: CRISIL

Primary steel producers in India are expected to reduce debt by Rs 35,000 crore, between FY21 and FY22, using the higher operating profits generated for prepayment, according to a report by rating agency CRISIL.

This reduction in debt 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 per cent of domestic production.

The outstanding debt of steel makers was pegged at Rs 2.15 trillion at the end of March 2020. The reduction in debt is expected to be Rs 25,000 crore in this fiscal and about Rs 10,000 crore in fiscal 2022.

Rating agency CRISIL said domestic demand recovered strongly in the second half of this fiscal, growing nearly 10 per cent between October and January versus a 30 per cent on-year fall in the first half. Consequently, demand contraction will be less than 10 per cent for the whole of this fiscal. The higher infrastructure spending by government, and recovery in residential real estate are expected to improve steel demand by 10-12 per cent next fiscal, it added.

The domestic hot-rolled coil (HRC) prices rallied to a multi-year high of nearly 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 Union Budget.

Consequently, realisation in the next fiscal may still be approximately 15 per cent 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 nearly 23 per cent next fiscal (FY22), compared with almost 25 per cent likely this fiscal.

Primary steel producers in India are expected to reduce debt by Rs 35,000 crore, between FY21 and FY22, using the higher operating profits generated for prepayment, according to a report by rating agency CRISIL.

This reduction in debt 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 per cent of domestic production.

The outstanding debt of steel makers was pegged at Rs 2.15 trillion at the end of March 2020. The reduction in debt is expected to be Rs 25,000 crore in this fiscal and about Rs 10,000 crore in fiscal 2022.

Rating agency CRISIL said domestic demand recovered strongly in the second half of this fiscal, growing nearly 10 per cent between October and January versus a 30 per cent on-year fall in the first half. Consequently, demand contraction will be less than 10 per cent for the whole of this fiscal. The higher infrastructure spending by government, and recovery in residential real estate are expected to improve steel demand by 10-12 per cent next fiscal, it added.

The domestic hot-rolled coil (HRC) prices rallied to a multi-year high of nearly 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 Union Budget.

Consequently, realisation in the next fiscal may still be approximately 15 per cent 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 nearly 23 per cent next fiscal (FY22), compared with almost 25 per cent likely this fiscal.

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