Top Steel Makers to Gain as 22 MT of Stressed Assets Referred to NCLT: CRISIL | CORPORATE ETHOS

Top Steel Makers to Gain as 22 MT of Stressed Assets Referred to NCLT: CRISIL

By: | May 14, 2018
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Companies with around 22 million tonne (MT) of crude steel capacity have been referred to National Company Law Tribunal (NCLT) in the first round of the stressed assets resolution process by the Reserve Bank of India (RBI).

DCRISIL Research believes resolution of these cases will alter India’s steel sector landscape in three ways:

One, over half of steel sector’s outstanding debt of Rs 3.26 lakh crore will stand resolved.

Two, about a fifth of India’s crude steel capacity held by these companies will move to stronger hands resulting in better working capital and liquidity management. That, in turn, would lead to improving utilisation levels.

And three, the flat steel segment would consolidate further and be controlled by fewer players – both domestic and global.

Says Prasad Koparkar, Senior Director, CRISIL Research, “For acquirers of these assets, apart from attractive product portfolios and locational advantages, these assets also offer easy scalability. The 22 MT of capacities under resolution have brownfield expansion potential of another 20-21 MT – based on their environment clearance and regulatory filings.”

India’s flat steel market is dominated by 6 players that account for ~85% of the capacity with the rest being distributed between smaller players and re-rollers. Of the six, three are currently part of NCLT I resolution process. In other words, they are being eyed by large domestic and international steel makers for expansion or entry strategies.

Based on various acquisition scenarios, the flat steel market in India is expected to consolidate further from the current scenario of (85% being controlled by six players) to anywhere between 3 to 4 players. Further, with few flat re-rollers being referred to NCLT II, even these assets can be acquired by the large players thereby strengthening their position. While the impact might not be very pronounced in Scenario I (refer to chart in annexure), in the case of other scenarios, the impact would be more accentuated.

Says Rahul Prithiani, Director, CRISIL Research, “As the dynamics of a more consolidated industry play out in India’s flat steel space, spreads between landed and domestic prices are expected to narrow. Higher utilisation and volumes, coupled with better pricing, will bode well for the profitability of players.”

But if the consequent rise in prices hurts consumers, there is a risk of the government intervening. Global prices would also have a bearing, as will domestic demand and supply.