However, it later upgraded its outlook for the sector to ‘stable’ on the back of improving demand and prices.
In a statement, ICRA on Thursday said, “It has revised the steel sector’s outlook to ‘positive’ from ‘stable’ following all large listed steel companies reporting their best-ever quarterly performance in Q1 (April-June period) of financial year 2022, and the earnings outlook remaining healthy for the remaining months of FY2022.”
Given the strong earnings growth and capital expenditure (capex) curtailments following the pandemic-related uncertainty, steelmakers started to aggressively de-leverage since the second quarter of FY2021. This trend is reflected by the industry’s consolidated debt levels declining to Rs 2 lakh crore in July-end 2021, from Rs 2.6 lakh crore in July-end 2020, registering a sharp decline of over 21 per cent.
The industry’s consolidated borrowings today 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 USD 180 per tonne in July 2021, shrinking by almost half from USD 350 per tonne prevailing in November 2008.
This, ICRA said, suggests that domestic steel companies are now significantly less leveraged than in FY2009, when the last steel supercycle ended, following the global financial crises.
Jayanta Roy, senior vice-president and group head (corporate sector ratings) of ICRA, said, “After a seven per cent contraction in steel demand in last year following the pandemic, we expect domestic consumption to grow at around 12 per cent in the current fiscal.”
He added that steel production growth in FY2022 is likely to be higher at around 14 per cent, getting traction from the increasing trend in net finished steel exports.