Leverage for Primary Steel Firms to Hit Five-Year High Amid Expansion: CRISIL

The net leverage of domestic primary steelmakers is expected to rise to a five-year high of over 3x this fiscal, driven by aggressive capital expenditure (capex) plans, according to a CRISIL Ratings report. Despite rising debt, credit metrics remain manageable due to increased volumes and efficiency gains.

CRISIL’s analysis of key producers—Jindal Steel & Power, Tata Steel, JSW Steel, SAIL, and ArcelorMittal Nippon Steel India—highlights that while net debt may increase by over 25% this year, annual production volumes have grown over 35% since pre-pandemic levels. Additionally, net debt per tonne remains 30% lower than before the pandemic.

Ongoing capex, largely focused on brownfield projects, is expected to boost capacity by 30 million tonnes per annum (mtpa) by FY27, with 20 mtpa set to be operational by the end of this fiscal. CRISIL noted that about a third of the capex targets value-added products, enhancing realisations and strengthening business profiles.

However, profitability pressures persist due to falling domestic steel prices, declining by 10% this fiscal amid rising imports, especially from China. Operating profit margins are forecast to stabilize at 15-16%, with EBITDA expected to drop 5-7% this year.

CRISIL expects improvement next fiscal as global steel prices stabilize and new capacities generate incremental volumes. Net leverage is projected to reduce to 2.8-3.0x. However, risks remain from potential price drops due to weak demand or higher imports.

Despite challenges, the liquidity of steelmakers remains robust, supported by efficient capex execution and healthy domestic demand.