The net leverage - ratio of net debt to EBITDA (earnings before, interest, depreciation and amortisation) - of Indian primary steel makers will hit a five-year high of over three times in the fiscal year 2024-25, a CRISIL Ratings report said on Thursday, November 29.
According to CRISIL, the net debt to EBITDA ratio of primary steel companies was rising as debt was expected to increase by over 25 percent on the back of continued capital expenditure even as profitability was impacted by cheaper imports.
However, it said that the moderation in credit metrics will be manageable given that net debt per metric ton is below the pre-pandemic level and the low risk in implementation of capex supporting volume and efficiency gains.
The CRISIL report is based on a study of five primary steel producers - Jindal Steel & Power, Tata Steel, JSW Steel, Steel Authority of India and ArcelorMittal Nippon Steel India - accounting for 55 percent of domestic production.
“While net leverage is expected to rise to a 5-year high of three times this fiscal year, interest coverage will fall below four times. Yet, the credit metrics will be manageable and better than pre-pandemic levels because annual volumes have grown by more than 35 percent and net debt per tonne of installed capacity remains 30 percent lower than before the pandemic,” the report said.
Major steel producers have been on an expansion spree. Ongoing capex is expected to boost capacity by 30 million mt by the financial year 2026-27, of which 20 million mt per year capacity is to be added by the end of this fiscal year.
However, the capex risk is low, as it is brownfield in nature, involving lower cost per mt compared with greenfield expansion. Furthermore, about a third of this capex is to increase downstream value-added products and efficiency benefits, which will support realisations and strengthen business profiles, the report said.
While domestic demand is healthy, global steel demand is likely to contract for the third consecutive financial year. This is resulting in rising imports - particularly from China, where demand remains muted - which are pressuring realisations, CRISIL said.