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Informist, Thursday, Oct. 17, 2024

 

MUMBAI – The revenue earned by secondary long-steel producers will increase by around 7% in 2024-25 (Apr-Mar) from 4% last financial year, CRISIL Ratings said Thursday. The growth will be driven by strong domestic demand, owing to the central government's spending on housing and infrastructure. 

 

Improved operating leverage along with declining prices of key inputs such as iron ore and coal will boost operating margin by 50-60 basis points to around 6.5% in FY25, it said. The rating firm analysed 149 secondary long-steel producers, accounting for 30% of the sector's revenue. 

 

In FY25, the central government's spending on rural and urban housing projects, under the Pradhan Mantri Awas Yojana and the National Infrastructure Pipeline, will sustain demand. Volume is expected to grow 7-8% from last year, when it had risen by around 14%, it said. Average steel realisation will be steady at INR 53,000-54,000 per tonne this fiscal because of stable supply. Average steel realisation fell 10% in FY24 on account of lower raw material prices.

 

"Steady realisation and increased volume will propel revenue of secondary long-steel producers this fiscal," said Rahul Guha, director at CRISIL Ratings. "Owing to higher volume, the sector's capacity utilisation will rise to around 83% this fiscal from around 80% last fiscal. As a result, EBITDA (earnings before interest, tax, depreciation and amortisation) per tonne will increase to nearly INR 4,000 from INR 3,700, leading to significantly higher cash accrual," Guha said.

 

Higher cash accrual will help secondary long-steel producers to limit their long-term debt. "Higher cash accrual and deleveraged balance sheets continue to provide sufficient headroom to support rising capex, thereby keeping the credit profiles of secondary long-steel producers comfortable," said Argha Chanda, director at CRISIL Ratings. "Their gearing (debt-to-equity ratio) will remain below 1 time as on Mar. 31, 2025, consistent with last fiscal. Furthermore, improved operating performance will help sustain interest coverage at 3.4 times, in line with last fiscal," Chanda said.  End

 

Reported by Ashutosh Pati

Edited by Akul Nishant Akhoury

 

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