Posted on 30 Dec 2020
Jindal Steel & Power (JSPL)’s improving domestic steel operations, together with ongoing deleveraging in its international subsidiaries, are leading to a material improvement in its consolidated capitalisation, says ICRA. The credit rating agency has thus upgraded various ratings on the Indian producer.
Despite challenging market conditions amid the outbreak of the pandemic, JSPL reported 13% on-year shipment growth in the eight months through November versus a -30% decline in domestic steel consumption.
“Sustained volumetric growth together with an improvement in steel realisations amid pick-up in domestic steel demand, soft coking coal prices, and access to royalty-paid iron ore fine inventory when domestic iron ore prices have spiked, are expected to keep JSPL’s steel spreads healthy in the near term,” ICRA says in a note seen by Kallanish.
The divestment of Oman-based subsidiary Jindal Shadeed will help the group reduce its consolidated debt significantly, ICRA observes. Pending conclusion of the transaction, assets and liabilities of the Oman asset continue to appear as “held for sale” in the company’s books.
There are downside ratings risks, however. The company remains dependent on procurement from the open market for nearly 80% of its iron ore requirement – barring the benefit from 12.2 million tonnes of iron ore fine reserves. The recent supply shortage in Odisha and the consequent surge in domestic iron ore prices could therefore hamper the firm if they persist for longer, ICRA points out.
The stable outlook on JSPL’s rating reflects ICRA’s expectation that a continuing ramp up in the company’s domestic steel volumes, together with access to raw material at favourable prices will facilitate a healthy performance in the near term, the agency concludes.
Source:Kallanish
