CARE reaffirms 'AA 'credit rating on Steel Authority of India's long-term bank facilities

CARE Ratings Limited has reaffirmed the credit ratings for Steel Authority of India Limited (SAIL), highlighting the company's strong market position and robust domestic demand. SAIL's long-term bank facilities have been rated CARE AA; Stable, with an increase to ₹14,100 crore from ₹10,500 crore, the ratings agency said. SAIL's short-term bank facilities have been rated CARE A1+, now enhanced to ₹39,000 crore from ₹35,000 crore, the agency added.

SAIL's reaffirmed ratings underscore its status as a 'Maharatna' company, with a 65% stake held by the Government of India. This ownership structure provides SAIL with significant advantages in procuring contracts and raising finances at competitive rates. The company's established position as a leading steel producer with access to captive iron ore mines across Jharkhand, Odisha, and Chhattisgarh further strengthens its operational capabilities.

Despite a decline in net sales realisations, SAIL reported a 5% increase in saleable steel volumes, reaching approximately 17.02 million tonnes per annum in FY24. The company's total operating income for FY24 was ₹1,05,375 crore, a slight increase from the previous fiscal year. The profitability of SAIL was impacted in FY23 due to high coking coal prices; however, a moderation in raw material prices and strong domestic demand helped maintain a PBILDT per tonne of ₹6,579 in FY24, up from ₹4,970 in FY23.

Operational Performance

SAIL's operational performance remains stable, with a crude steel production capacity of 19.63 million tonnes per annum, fully supported by its captive iron ore mines, CARE Ratings said in its note. The company meets 100% of its iron ore requirements domestically, although it continues to import 95% of its coking coal, exposing it to foreign exchange fluctuation risks. CARE Ratings notes that while raw material prices are expected to remain volatile, domestic steel players like SAIL are better positioned to pass on cost increases and maintain high sales volumes due to strong domestic demand.

The ratings are tempered by the cyclical nature of the steel industry, SAIL's working capital-intensive operations, and its commitments to capital-intensive projects. Given its extensive mining operations, the recent Supreme Court judgment allowing states to levy taxes on mining operations, potentially retroactively, remains a key area of concern for SAIL.

SAIL's liquidity position is deemed adequate, with free cash and cash balance of ₹99 crore and earmarked term deposits of ₹476 crore as of March 31, 2024. The company is expected to generate sufficient cash accruals to cover its scheduled debt repayments of ₹1,577 crore in FY25. SAIL's financial flexibility is further enhanced by its low gearing ratio and government backing, providing it with easy access to funds at attractive rates.

Disclaimer: This article was generated using AI tools and has undergone editorial review for clarity and coherence.