Demand supply balance to boost profitability of steel sector in India – Ind-Ra

India Ratings and Research (Ind-Ra) has revised the outlook on the steel sector to stable for FY19 from negative in FY18, in view of healthy global and domestic demand growth along with ongoing capacity rationalizations in China.

 

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Ind-Ra expects industry participants to exhibit an improvement in operational and financial performance, backed by steady sales realizations and margins, supported by an improved demand-supply balance.

The agency has also revised its outlook on rated steel entities to Stable for FY19 from Negative in FY18, in view of higher cash flow generation and balance sheet deleveraging, supported by healthy margins, moderate capex requirements. Nonetheless, most players shall continue to have leverage levels higher than the rating medians in their respective rating categories. A few larger players might not deleverage much, due to their committed capital investments. Furthermore, any leveraged buyouts of the stressed assets could delay deleveraging for selective companies, if acquired on balance sheet; however, if the acquisition is structured in separate companies with minimum debt on balance sheet, deleveraging is still possible.

Ind-Ra believes FY19 will be a year of consolidation for the steel industry; however, some of the stressed assets may take 12-18 months to ramp-up utilization to optimum levels. A turnaround in these stressed assets along with new capacities ramp-up could more or less meet the incremental demand, assuming import-exports levels remain steady. Nevertheless, increasing global trade protectionism could pose risk to exports and put some pressure on the domestic capacity utilization.

Source : Strategic Research Institute, SteelGuru