India: Steel companies’ deleveraging accelerates
India’s major steel companies are taking advantage of the rise in metal prices to deleverage their balance sheets and speed up debt repayments. Large steel companies such as Tata Steel, Steel Authority of India Ltd (SAIL) and Jindal Steel and Power Ltd (JSPL) are among the companies that have reduced debt between 28% and 31% in the recent quarters.
As steel prices remain firm amid a demand surge in global markets, Indian steel companies are expected to accelerate the pace of debt reduction in the coming years, said experts.
Last week, Tata Steel said that it has pared its debt to the tune of ?28,000 crore in FY21. The company reduced its debt by ?12,000 crore in the March quarter alone. As a result, the year-end net debt was ?75,389 crore, which is 28% lower than FY20.
State-owned SAIL shaved off gross debt by ?16,150 crore in FY21, making it the second steel company after Tata Steel to carry out such an aggressive deleveraging of the balance sheet. The company’s gross debt, which typically excludes cash and cash equivalents, came down to about ?35,330 crore at the end of FY21 compared with ?51,481 crore at the end of FY20.
Among other companies seen cutting back debt is the Naveen Jindal promoted JSPL. The company fast-tracked its payments to its creditors. JSPL has reduced debt by ?20,000 crore from a peak of ?46,500 crore in December 2016 to ?25,600 crore as reported in December 2020. The company said it has surpassed its previous plans by cutting an additional ?2,462 crore for FY21.
“The significant debt reduction is part of our long-term financial strategy to create a strong balance sheet. In the coming quarters, we intend to further strengthen our balance sheet and become net debt-free in the near future,” JSPL managing director V.R. Sharma said.
The feverish rise in global steel prices is proving to be a boon for steel companies, which are making the most of it. Domestic hot-rolled coil prices, which touched ?56,000 per tonne in March, rallying from ?39,200 a tonne in March 2020, have started moving northwards again from April, against the backdrop of 10% discount from international prices.
“While we are factoring in a steady cyclical correction post Q1FY21, the extent of price increase is leading to improved estimates of deleveraging,” said analysts at ICICI Securities in a client note.
Even after normalcy resumes, net debt levels of steel firms are expected to show a sharp improvement in the next two years, they said.
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