Net debt-to-EBITDA ratio of domestic steel manufacturers to stay below level of 2 times in FY24: Crisil

Crisil Ratings in its latest report has said that it expects the net debt-to-EBITDA ratio of domestic steel manufacturers to stay below the level of 2 times in the financial year 2023-24 (FY24). It stated the steel makers had reported the ratio of net debt to EBITDA in the range of 1.6-1.7 times in preceding financial year 2022-23.

It mentioned that with the leverage much lower than the average of 3.5 times, seen during past five fiscals, the median credit quality of the sector is unlikely to be affected as balance sheets of the players will remain healthy. Further, it added project risks are expected to be low due to the brownfield nature of bulk of the capacity addition.

Besides, it said healthy demand growth, coupled with high operating rates, is driving the need to add capacity by the players. After a strong recovery seen in fiscal 2022 and 2023, with growth of 11.5 per cent and 13.3 per cent, respectively, domestic steel demand is expected to continue to grow at a healthy clip of over 7-9 per cent this fiscal. This will be driven by government push to the infrastructure and construction sectors, which have 70 per cent share in steel consumption. 

Moreover, it said global demand is also expected to recover, though marginally (1-2 per cent), from the lows of last fiscal, which was acutely impacted by war. This should support a recovery in exports, which is expected to add 1-2 per cent in incremental volume growth for players.