articles Ratings /ratings/en/research/articles/230313-indian-steel-s-upswing-in-debt-is-temporary-12665687 content esgSubNav
In This List

Indian Steel's Upswing In Debt Is Temporary


Instant Insights: Key Takeaways From Our Research

Leveraged Finance & CLOs Uncovered Podcast: International Park Holding (PortaVentura)


Credit FAQ: Adani Group: The Known Unknowns


Real Estate Monitor: Higher Rates And Slower Growth Pressure Credit Quality

Indian Steel's Upswing In Debt Is Temporary

SINGAPORE (S&P Global Ratings) March 13, 2023--Major Indian steel producers are starting to rack up more debt after two years of deleveraging. The rise, which we view as temporary, is mainly due to higher working capital and weaker earnings.

"We expect the debt level of these companies for fiscal 2023 to be about 15% higher than last year," said S&P Global Ratings credit analyst Anshuman Bharati.

"That said, we believe the industry's debt levels as of end-March 2023 will still be lower and credit metrics will be much stronger than pre-pandemic levels."

Deleveraging will resume in fiscal 2024 (year ending March 31, 2024), as working capital declines and earnings improve, in our view. Our calculation of working capital includes inventory, receivables, and payables.

Working Capital In Focus Amid High Costs 

Steel inventories built up in the first half of fiscal 2023 due to sluggish domestic demand and reduced exports. This resulted in a working capital buildup of Indian rupee (INR) 150 billion (about US$1.8 billion) in the top four domestic steel producers as of Sept. 30, 2022, 50% higher than at March 31, 2022. Although domestic demand is gradually picking up, inventory will likely remain elevated until the second half of fiscal 2024. This is due to the persistently high prices of raw materials, particularly coking coal, and slow recovery of demand for exports.

At the same time, lower revenues in fiscal 2023 will magnify the impact of elevated working capital. We estimate that working capital as a percentage of sales will increase to about 10% in fiscal 2023 from 6% in fiscal 2022.

Chart 1


Higher Input Costs Are Weighing On Cash Flows 

Coking coal prices have surged by over 50% since bottoming out in August 2022 due to supply disruptions in Australia. With China showing renewed interest in Australian coal, we anticipate that prices will remain high for now. Prices will likely decline in the next two quarters as Chinese miners ramp up production and supply constraints in Australia ease.

We expect average steel prices in India to rise 10% in the second half of fiscal 2024, compared with the first half. A strong rebound in domestic demand, following the seasonally weak monsoon quarter, and improved export prospects could aid such a recovery.

Chart 2


A rise in steel prices and a reduction in raw material costs would improve Indian steel spreads. This should facilitate a working capital release and improve free operating cash flows at steel companies. Absent any significant inorganic or brownfield expansion, major steel companies will likely resume deleveraging, reducing debt by 8%-10% in fiscal 2024, in our assessment.

Chart 3


Our base-case scenario estimates a 30% increase in EBITDA/ton to INR11,000-INR11,500 in fiscal 2024. This is, however, 40% below the record high of about INR20,000 in fiscal 2022.

The balance sheets of major Indian steelmakers are likely to strengthen, with a ratio of debt to EBITDA of 2.2x, much lower than pre-pandemic level of 3.5x-5.0x. Such strong credit metrics should support the steel industry's expansion plans beyond fiscal 2024.

Related Research

This report does not constitute a rating action.

S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 26 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.

Primary Credit Analyst:Anshuman Bharati, Singapore +65 6216 1000;
Secondary Contact:Neel Gopalakrishnan, Singapore + 65-6239-6385;

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back