Fitch Ratings has given four out of five grade for the forthcoming Rashtriya Ispat Nigam initial public offer. The grade indicates above-average fundamentals of the issue compared to other listed equity securities.
The grading reflects RINL's position as one of India’s largest producers of long steel. However, the economic slowdown in the recent past, especially in the construction and infrastructure sectors, could reduce domestic long steel demand in the short-term. The company has a strong cash balance of Rs 2,068 crore (Rs 1,998 crore) in FY12.
The grading is constrained by RINL’s consistently low EBITDA of 9-10 per cent and a low return on average equity of 6-8 per cent over last three fiscal, reflecting its lack of raw material linkages and on-going capex. The full benefit of the capex will start to accrue from FY14, thus Fitch expects return on equity to remain low in the short- to medium-term.
There is a long delay in the company’s Rs 12,291-crore capex to double its capacity to 6.3 million tonnes a year (mtpa). While the blast furnace was commissioned in April 2012 and is under stabilisation, the remaining ancillary and downstream facilities are likely to be commissioned by March next year.