Fitch Ratings has downgraded issuer default rating (IDR) of JSW Steel (JSWS) and Tata Steel (TSL) to BB-minus from BB, following review of portfolios.
Fitch has also downgraded Tata Steel UK Holdings' long-term IDR to B-minus from B. The outlook is negative. The agency has also downgraded JSW Steel's and Tata Steel's senior unsecured rating to BB-minus from BB.
The rating agency review of portfolio followed Fitch’s expectation of lower prices and decline in steel demand in India for fiscal 2020-21 compared to earlier assumptions of a mid-single-digit volume increase due to economic impact of the pandemic.
The Indian Steel Association (ISA), the leading body of domestic steel producers, has stated in April that the estimated steel consumption in the country will be 93.7 million mt in 2020, down 7.7 percent from 2019. The forecast is much lower than that made by the ISA in February.
“We assume standalone sales volume for JSWS and TSL will decline by 6%. We also expect a lower EBITDA margin in FY21 due to the volume drop and weaker steel prices,” Fitch said in a statement, adding that volumes and margins will increase significantly in FY22 amid a broader economic recovery.
Annual standalone EBITDA per tonne of JSW Steel is expected to decline by 7.6 percent to INR 7,300 in FY2020-21, but will improve fast to INR 9,100 next fiscal.
For Tata Steel Fitch expects the same dynamics – lower profits this fiscal year will be changed by higher profitability in coming two year owing to higher production, improved local sales etc. “EBITDA/tonne margin for standalone operations is around INR9,800 in FY21, improving to INR13,100 in FY22 and INR13,400 in FY23,” a report said.