Steel Authority of India Ltd (SAIL), the largest state-owned steel-maker, plans to cut its debt to around Rs 22,000 crore, a 10-12 per cent reduction over last fiscal, to maintain the debt-equity ratio at 1:1.

The deleveraging, which began in Q2 (uly–September), is expected to gain momentum in H2 (October-March), ahead of the Rs 1 lakh crore capex and modernisation efforts.

For the quarter ending on September 30, 2023, SAIL’s net debt was around Rs 25,000 crore, compared with around Rs 25,500 crore at FY23-end. Debt declined by Rs 4,000-odd crore, from a steep Rs 29,000-odd crore in Q1 (April-June).

According to Anil Tulsiani, Director (Finance), SAIL, the debt reduction plan is to the tune of Rs 3,500 crore on a year-to-year basis, against a capex (earmarked for FY24) of Rs 5,500 crore. However, as the capex is expected to intensify post FY25, there could be some limits on the deleveraging plans, even without a “bunching up” of the capex.

Cash flows could well be in the range of Rs 25,000 crore for four-odd years, except during the anticipated peak period of modernisation in FY28. The mega-modernisation will see capacity addition of 3.5–4 million tonnes (mt).

SAIL’s FY24 production and sales are projected at around 19 mt.

Rising capex 

“Capex of Rs 5,500 crore is earmarked for FY24 and similar capex is also expected in FY25. Capex is expected to peak in FY27-28 and, accordingly, we have kept the long-term leverage threshold at 1x debt to equity,” Tulsiani told analysts during an earnings call.

While FY24’s capex is expected to primarily go towards debottlenecking, earmarked at Rs 3,000-3,400 crore, the rest is for maintenance.

The company is expected to set up two casters at Rourkela and Bhilai, which will add 2 mtpa capacity in the next two years.

In terms of new projects, the company received in-principle approvals for capacity expansion at the IISCO (in Burnpur, West Bengal) and Bokaro (in Jharkhand) steel plants by 4.5 mtpa and 3 mtpa, respectively. The IISCO plant expansion would be finalised during Q3 or Q4 this financial year, Tulsiani said.

Pricing pressures

According to Tulsiani, surging imports have already brought flat steel prices under pressure in India and steel makers had to rollover (keep prices unchanged) for offerings in view of the changed market conditions.

Average October realisations were at Rs 56,000 per tonne, which includes Rs 57,000 per tonne for flat and Rs 54,000 a tonne for long steel products.

The Q2 realisations were lower by Rs 3,000 per tonne, compared with Q1 realisations. 

Price volatility in coking coal — seen during Q3 primarily — is also expected to impact margins during the second half. The imported coking coal cost for Q2FY24 was around Rs 23,000 per tonne, while the indigenous coal cost was around Rs 12,500 per tonne.

The average coking coal cost from imports during Q3FY24 is expected to be Rs 27,000-28,000 per tonne. Currently, 85 per cent of the coal used is from imports and the rest from domestic sources.

To reduce the impact on margins, SAIL plans to increase the share of coal from domestic and indigenous sources to 20 per cent (from 15 per cent, which includes 4 per cent from captive coking coal mines and the rest through the BCCL).