Operating profits of Indian steel companies is likely to see contraction of around 45-50 percent in fiscal 2022-23, leading to free cash flow moving to negative territory, rating agency ICRA said in an industry report on Monday, December 26.
Indian steel companies face a bumpy road ahead as external environment becomes more challenging owing to rising inflation, energy costs and higher interest rates, ICRA said.
In the second quarter (July-September) of 2022-23, industry absolute earnings plummeted to a nine-quarter low due to combination of falling realizations and rising coal and energy costs, it said.
"Dependence on external financing to meet committed expansion plans is likely to increase going forward, early signs of which can be observed in the gradual increase in the steel industry's borrowing levels during the first half of 2022-23,” ICRA said.
While India's finished steel exports are expected to gradually increase from the November 2022 lows following the withdrawal of export duty, it is unlikely to go back to levels seen in 2020-21 and 2021-22. On the other hand, given the limited growth opportunities in key global steel producing hubs of China, Japan, South Korea, CIS, Europe, and the US, finished steel exports to India have been steadily increasing, resulting in India becoming a net finished steel importer in two back-to-back months during October-November 2022, the report said.