Stressed steel plants bought under IBC witness faster returns: CRISIL
Steel

Stressed steel plants bought under IBC witness faster returns: CRISIL

Stressed steel plants obtained under the Insolvency and Bankruptcy Code (IBC) resolution process are witnessing quicker returns, as indicated by a study carried out by CRISIL Ratings on five stressed steel producers, which were obtained under the insolvency process. These assets represented 70% of the total financial claims resolved or liquidated under IBC in the steel sector till March 31.

The domestic demand outlook stays strong despite the pandemic-linked blips, which helped the acquirers access utilisation levels. The steel upcycle happening currently will also mean stronger-than-expected realisations over the medium term. As a result, the acquirers might witness about 20% faster payback and are ready to tap brownfield potential housed under these assets.

While the debt inherited through acquisition became sustainable after the haircuts for the acquirers, a turnaround in the functional performance led by enhanced efficiency was the key for a reasonable payback period of around six years, providing average domestic steel prices of around Rs 39,000 per tonne in the financial year 2018.

The acquirers anticipated to turn these capacities around — utilisation rates increased from 65% in the financial year 2018 to more than 80% by the end of the FY21 riding on enhanced raw material, operational de-bottlenecking, strong managerial oversight and access to working capital.

Driven by the landed cost of imports, domestic steel prices have witnessed a similar rise at 15% higher in FY21 compared to FY18.

The obtained assets also have the potential of brownfield almost doubling their existing capacities of 21 metric tonnes (mt), which could get kick-started over the coming 1-2 years provided a strong demand outlook. It will be additional to the plans about ongoing brownfield capacity expansion by the acquirers.

Associate Director of CRISIL Ratings, Naveen Vaidyanathan, told the media that for the steel sector, the pandemic has not derailed demand much and that this fiscal may see a robust 10-12% demand growth, led by the auto and infrastructure segments and higher exports. The medium-term prospects stay solid, too, with an estimated compound annual growth rate of 6-7% for financial years 2022-25, said Vaidyanathan.

Image Source


Also read: JSW Steel reports 62% y-o-y jump at 4.93 mt in Q1 FY22

Also read: Crude steel output of Tata Steel surges over 43%, sales by 35%

Stressed steel plants obtained under the Insolvency and Bankruptcy Code (IBC) resolution process are witnessing quicker returns, as indicated by a study carried out by CRISIL Ratings on five stressed steel producers, which were obtained under the insolvency process. These assets represented 70% of the total financial claims resolved or liquidated under IBC in the steel sector till March 31. The domestic demand outlook stays strong despite the pandemic-linked blips, which helped the acquirers access utilisation levels. The steel upcycle happening currently will also mean stronger-than-expected realisations over the medium term. As a result, the acquirers might witness about 20% faster payback and are ready to tap brownfield potential housed under these assets. While the debt inherited through acquisition became sustainable after the haircuts for the acquirers, a turnaround in the functional performance led by enhanced efficiency was the key for a reasonable payback period of around six years, providing average domestic steel prices of around Rs 39,000 per tonne in the financial year 2018. The acquirers anticipated to turn these capacities around — utilisation rates increased from 65% in the financial year 2018 to more than 80% by the end of the FY21 riding on enhanced raw material, operational de-bottlenecking, strong managerial oversight and access to working capital. Driven by the landed cost of imports, domestic steel prices have witnessed a similar rise at 15% higher in FY21 compared to FY18. The obtained assets also have the potential of brownfield almost doubling their existing capacities of 21 metric tonnes (mt), which could get kick-started over the coming 1-2 years provided a strong demand outlook. It will be additional to the plans about ongoing brownfield capacity expansion by the acquirers. Associate Director of CRISIL Ratings, Naveen Vaidyanathan, told the media that for the steel sector, the pandemic has not derailed demand much and that this fiscal may see a robust 10-12% demand growth, led by the auto and infrastructure segments and higher exports. The medium-term prospects stay solid, too, with an estimated compound annual growth rate of 6-7% for financial years 2022-25, said Vaidyanathan. Image Source Also read: JSW Steel reports 62% y-o-y jump at 4.93 mt in Q1 FY22 Also read: Crude steel output of Tata Steel surges over 43%, sales by 35%

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