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Rating agency ICRA has revised the outlook on the Rs 75,205 crore debt papers of JSW Steel to stable, from negative, owing to improving demand and sustained increase in prices.
ICRA has considered the consolidated financial risk profile of JSW Steel including that of Bhushan Power and Steel (BPSL) acquisition.
The proposed acquisition of BPSL would be largely debt-funded, which along with the absence of fresh equity raising by JSW Steel, is expected to adversely impact its consolidated financial risk profile. This would also keep the overall debt levels elevated in the near-to-medium term.
The 5-mtpa capacity expansion programme at Dolvi has been delayed due to Covid, and is now slated to start operations by this fiscal end. Any further delay would disrupt JSW Steel’s credit metrics and hence remains a key monitor able.
The ratings are also constrained by JSW Steel’s exposure to price risks, especially in case of coking coal, which has exhibited high price volatility in the recent past.
JSW Steel also remains exposed to forex risks due to its dependence on imports to meet its coking coal requirements. The fact that about 50 per cent of its standalone debt as on March 31, 2020 was denominated in the foreign currency.
However, the forex risks are largely mitigated by its formal hedging policy to fully cover its revenue account and next one year’s debt service obligations, and the inherent linkage of steel realisations with foreign exchange rates.
As on September-end, the promoters held a 44 per cent equity stake in JSW Steel. Of this, about 26 per cent was pledged, which despite a considerable reduction from 50 per cent as on September 30, 2019, could weigh on the company’s financial flexibility.
Out of the committed capex of Rs 25,387 crore over FY21-23, the company is likely to incur a capex of Rs 9,000 crore in FY21, which does not include an outgo of Rs 1,550 crore towards acquisition of ACCIL. The pending capex of Rs 16,387crore during FY'22-23 would keep the overall debt levels elevated and keep JSW Steel’s free cash flows under pressure in the near-to-medium term.
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