Fitch Ratings has upgraded JSW Steel rating to stable from negative on the back of measured approach to capacity expansion enabling it to deleverage steadily over the years. The outlook revision reflects robust profitability from improved industry fundamentals, said the rating agency.
“We estimate that the company's leverage will remain relatively high, with funds from operations adjusted gross leverage at over four times over the next two years, but risks are partly offset by its healthy EBITDA margin, which should stay at over 20 per cent,” it said.
Domestic steel prices followed the rise in international prices with a lag, improving EBITDA/tonne to ₹9,000 a tonne in December quarter, from ₹6,300 a tonne logged in Q1 FY'18.
China spot prices
China's hot-rolled steel-sheet spot prices have increased to $650 a tonne from about $450 a tonne in April 2017, due to the improved demand-supply balance in the world's largest market and higher raw material costs.
Chinese steel exports were down by about 30 per cent last year, despite record steel output. Last month, China said it aims to meet its target of cutting steel capacity by 150 million tonnes this year, two years earlier than planned.
Risks lower for Indian steel cos
In the first nine months of this fiscal, India’s steel demand was steady, at about 5 per cent. Risks to Indian steelmakers' margins are relatively lower due to regulatory protection should global steel prices trend downward. However, robust international steel prices have rendered India's anti-dumping duties ineffective.
JSW plans to invest around ₹27,000 crore till FY21 on several projects, including steelmaking capacity expansion at its Dolvi plant by five million tonne per year by 2020, at a cost of Rs 15,000 crore.
The company has won mining rights for five iron ore mines in Karnataka in 2016. It has commenced production from one mine in February and aims to produce 4.7 million tonnes of iron ore, about 20 per cent of its requirement at Vijayanagar plant.
The company has reported cash and cash equivalents of about Rs 15,000 crore and debt of Rs 43,500 crore as of December quarter.