A study of 125 CRISIL-rated secondary long-steel manufacturers indicate that Indian long steel sales volume is seen declining 12 to 15 percnet in the current fiscal following the Covid-19 pandemic.
Long-steel consumption is mainly linked to housing projects being implemented through schemes such as Pradhan Mantri Awaas Yojana (PMAY) and construction of roads. At the same time, as capital expenditure by central government will sustain demand from these segments at robust levels, declining spending by state govt and weak demand from the real estate sector will affect the overall off-take. As a result, volume could de-grow 12-15 percent this fiscal, Crisl said. Conversely, average steel realisation is expected be steady at Rs 40,000 to 41,000 per tonne on steady supply, given capacity expansion has been minimal over the past couple of years, Crisil has stated.
"But with sales volume also foreseen declining, revenue growth, also, will be curbed. However, lower revenue may not materially dent operating profit margin because of favourable cost structure. Variable cost - iron ore and coal - comprise three-fourths of the cost of production. As a result, operating margins tend to be somewhat protected in this business," the rating agency has noted. Says Mohit Makhija, Director, CRISIL Ratings. Mirpuri, Director, CRISIL Ratings, states "Leaner balance sheets and improvement in cost efficiencies will help secondary long-steel makers navigate the pandemic. Interest coverage2 is expected to improve to 3.4 times this fiscal from 2 times in fiscal 2016."
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