India\r\nRatings and Research (Ind-Ra) has affirmed JSW Steel Limited’s (JSWL) Long-Term\r\nIssuer Rating at ‘IND AA’. The Outlook is Stable. The instrument-wise rating\r\nactions are as follows:
Analytical\r\nApproach: Ind-Ra continues to take a consolidated view\r\nof JSWL and its subsidiaries because\r\nof the close operational and strategic linkages among them.
\r\nThe affirmation reflects JSWL’s continued strong business profile on the back\r\nof its low-cost position (conversion costs), improving backward integration,\r\nadequate liquidity and moderate balance sheet leverage. Furthermore, the rating\r\nreflects Ind-Ra’s expectation that the consolidated net adjusted leverage\r\n(including letter of credit (LC) acceptances) will be in the band of 2.5x to\r\n3.5x over FY24-FY25. The leverage will be supported by an improvement in JSWL’s\r\nEBITDA per tonne on account of the increased operating leverage from higher\r\ncapacities, healthy domestic demand and an increasing share of value-added\r\nproducts in the sales mix, despite an increase in net debt position on account\r\nof forex losses and capex.
Moderate\r\nBalance Sheet Leverage: The agency expects JSWL’s net adjusted leverage (including acceptances) to\r\nbe in the range of 2.5x-3.5x over FY24-FY25, after being higher than the agency’s\r\nexpectation of 3.5x for FY23 (FY22: 2.0x), supported by a standalone EBITDA per\r\ntonne in the range of INR10,000-INR12,000 despite an increase in net debt on account\r\nof forex losses and capex. The EBITDA\r\nper tonne over FY24-FY25 is likely to benefit from an increase in volumes from\r\nadded capacities, increasing backward integration and higher share of the\r\nvalue-added products in the company’s sales mix. The consolidated profitability\r\nis likely to be supported by a healthy domestic demand from the end-user\r\nindustries over the medium term and a moderate increase in exports benefitting\r\nfrom the removal of the export duty in November 2022 along with an expected improvement\r\nin the steel spreads. JSWL’s EBITDA per tonne, which was affected in 9MFY23 following\r\na substantial increase in coking coal prices and moderation of international\r\nsteel prices, is likely to improve sequentially in 4QFY23, led by an improving\r\nsteel spreads.
Strong\r\nBusiness Profile: JSWL has\r\na significant cost advantage, as it benefits from locational advantages, low\r\nmanpower costs and operational efficiencies. Backward integration meeting 41%\r\nof the company’s standalone iron ore requirements in 3QFY23 from captive mines will\r\nfurther ensure raw material security. JSWL has a leading market share in\r\nsouthern and western India, and the increasing value-added capacity (the share\r\nof value-added products in JSWL’s sales mix stood at 55% in 9MFY23 and 60% in\r\nFY22, up from 52% in FY21) is an added advantage. JSWL’s strategic partnership\r\nwith JFE Steel Corporation (Japan) for technology underpins the company’s\r\nefforts to develop value-added products. Additionally, JSWL has a low\r\nconversion cost per tonne compared to its domestic peers. JSWL’s business profile has strengthened\r\nfollowing the Bhushan Power and Steel Limited’s (BPSL) acquisition in March\r\n2021, leading to an increase in its scale and value-added product mix, and\r\naccess to eastern market where JSWL has its iron ore mines.
Capacity\r\nExpansion: JSWL has a planned capex of INR381.5 billion (including maintenance\r\ncapex) to be incurred over 4QFY23-FY25 towards the brownfield capacity\r\nexpansion at Vijayagar (19.5mtpa in FY25 from 12mtpa in FY22) and BPSL (5mtpa\r\nfrom 2.5mtpa), an expansion of its downstream capacity and enhancement of its\r\niron ore mining infrastructure. JSWL plans to increase its total India capacity\r\nto 37mtpa by FY25 from 27mtpa in FY22. The capex is likely to be funded by a\r\nmix of debt and equity. JSWL, with the expanded capacity, and large share of\r\nhigher value-added products will have the flexibility to optimise margins by choosing\r\nbetween domestic and export markets. However, Ind-Ra does not expect the\r\ncompany’s executing or financial closure risk to be high, given its project\r\nexecution track record, and strong banking and capital market relations. The\r\nagency has not budgeted any large acquisition in its base case financial\r\nprojection.
Healthy\r\nDomestic Demand Outlook: The agency expects the domestic consumption growth to continue in 4QFY23\r\nand FY24, underpinned by demand growth from construction, real estate, and\r\nautomobiles segments. A high government spending on infrastructure, and the\r\navailability of credit will support demand growth in the end-user segment. Furthermore,\r\nthe agency expects an improvement in per tonne margins during FY24-FY25 from\r\nFY23 levels due to a moderation in coking coal costs.
Operating\r\nCash Flows to Improve in FY24; Subdued in FY23: Ind-Ra expects JSWL’s operating cash flows\r\nto improve over FY24-FY25, led by a better-than-average of the cycle operating\r\nmargins and expanded volumes. Ind-Ra expects crude steel domestic capacity of\r\noverall 27 million tonnes to operate at about 90% in FY24. The agency expects\r\nthe company’s cost-efficiency programmes (completed in FY21-FY23) such as\r\npellet plants, coke oven and captive power plants to result in substantial cost\r\nsavings. The agency expects the cumulative EBITDA at JSWL’s plate and pipe mill\r\nand steel assets in the US and Italy-based subsidiaries to post a positive\r\nEBITDA in FY24-FY25 supported by receipt of a large government order in Italy\r\nand an improvement in spreads in the US. However, Ind-Ra opines JSWL’s capex\r\nprogramme, along with moderation in steel prices, consumption of high-cost\r\ncoking coal will constrain its free cash flows in FY23 and keep the overall\r\ndebt levels elevated over the medium term.
Iron\r\nOre Mines to Improve Backward Integration: The agency expects\r\nJSWL’s backward integration to increase following the ramping up of operations\r\nat its Odisha mines. The company now has 13 operational mines: four in Odisha\r\nand nine in Karnataka, which together cover 41% of the total iron ore\r\nrequirement for standalone operations in 3QFY23 ensures raw material security.\r\nThe backward linkage has substantially improved the company’s business profile\r\nas it provides a visibility on supply as well as costs. However, given these\r\nmines are obtained at auctioned premiums, the procurement price is linked to\r\nbenchmark prices. The company imports coking coal requirement and iron ore is\r\nprocured from domestic and international sources.
Liquidity\r\nIndicator- Adequate: At end-December 2022, JSWL had cash and\r\ncash equivalents of around INR112 billion and an unused working\r\ncapital line (fund-based and non-fund-based limits) of INR154 billion\r\n(including outside consortium). Ind-Ra\r\nexpects the working capital requirements to remain high on the back of\r\nincremental volumes post the ramp up of volumes at Vijaynagar and phase-II BSPL\r\nin FY24. JSWL has a target capex outflow\r\namounting to INR150 billion in FY23, of which it had already completed INR107\r\nbillion at end-December-2022, and the balance INR381.5 billion is to be spent\r\nover FY24-FY25. JSW has scheduled repayments of INR2.08 billion in 4QFY23 and\r\nINR168.82 billion in FY24. Given the capex budget for FY24-FY25, the agency\r\nexpects JSWL to refinance a part of its debt maturities well in advance,\r\ngiven its track record of raising funds through capital markets and banks. JSWL’s\r\nliquidity profile is also supported by its healthy financial flexibility and\r\nstrong access to capital markets.
Standalone\r\nFinancial Profile: On a standalone basis, JSWL contributed 79% to the total consolidated\r\nrevenues during 9MFY23 (FY22: 81%) and 86% to the consolidated EBITDA (82%). On\r\na standalone basis, JSWL reported a revenue of INR945 billion in 9MFY23 (FY22: INR1,118\r\nbillion) and an EBITDA margin of 10% (27%).
\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Inherent\r\nIndustry Risks and Exposure to Forex Risks: India’s steel\r\nsector participants are exposed to significant cyclical demand changes, high\r\nvolatility in both raw material and end-product prices, and changes in\r\ngovernment regulations. The Indian blast furnace route steel producers are\r\nlargely dependent on importing of coking coal, the supply of which is largely\r\nconcentrated. China is the major global producer and any policy change will\r\nhave implications on the industry operating margins. An increase in Chinese\r\nexports may re-surface, despite removal of export rebates due to China property\r\nmarket slump. Given JSW Steel’s dependence on imports for coking coal and its\r\nlarge forex debt (accounting for about 61% of the consolidated debt as on 31 March\r\n2022), the company remains exposed to forex risks. The raw material procurement\r\nis generally on foreign currency letter of credit and as such the liabilities\r\nare exposed to currency volatility risks. However, the same is largely\r\nmitigated by its hedging policy, fully covering its revenue account and the\r\nnext one year’s debt servicing obligations, and the inherent linkage of steel\r\nrealisations with foreign exchange rates.
Positive: The consolidated net adjusted leverage of 2.5x\r\non a sustained basis and a substantial reduction in refinancing needs could lead\r\nto a positive rating action.
\r\nNegative: The following events, individually or collectively, could lead\r\nto a negative rating action:
- \r\nhigher-than-Ind-Ra-expected\r\ndebt-led capex/acquisition/joint venture or associates,
- \r\na substantial\r\ndecline in the capacity utilisation and EBITDA per tonne,
- \r\nthe adjusted\r\nnet leverage (including acceptances) increasing above 3.5x on a sustained\r\nbasis,
\r\n- a sustained weak liquidity cushion\r\nand or inability to reduce refinancing risk.
ESG\r\nFactors Relevant to Rating:\r\nGHG Emissions and Air Quality under Environment has relevance and moderate\r\nimpact to the credit rating of JSWL. Increased environmental compliance costs\r\nand capital expenditures in overseas subsidiaries may have a modest impact on\r\nthe group’s margins and cash flows in conjunction with other factors. For\r\nmore information on Ind-Ra’s ESG Relevance Disclosures, please click here.\r\nFor answers to frequently asked questions regarding ESG Relevance Disclosures\r\nand their impact on ratings, please click here.
JSWL, part\r\nof the JSW Group, is an integrated manufacturer of a diverse range of steel\r\nproducts with an export presence in over 100 countries. JSWL has a total\r\nsteel-making capacity of 28.5mtpa in India and the US (including capacities\r\nunder joint control). It is among the leading producers and exporters\r\nof coated flat steel products in India. JSW has its largest capacity in\r\nVijaynagar Karnataka of 12 million metric tons. The products are used across\r\nend-user segments including industrials, infrastructure, automotive, electrical\r\napplications, etc. The promoters held 45.19% of equity stake in JSWL as on\r\n31 December 2022. The company completed the acquisition of BPSL in\r\nMarch 2021 by acquiring a 49% stake and subsequently increased the stake to 83.28%\r\nin October 2021.
CONSOLIDATED FINANCIAL SUMMARY
\r\n\r\n\r\n\r\n\r\n\r\n
| \r\n Particulars (INR billion) | \r\n \r\n 9MFY23 | \r\n \r\n FY22 | \r\n \r\n FY21 | \r\n
| \r\n Revenue | \r\n \r\n 1,189.9 | \r\n \r\n 1,463.7 | \r\n \r\n 798.4 | \r\n
| \r\n Operating EBITDA | \r\n \r\n 106.1 | \r\n \r\n 390.1 | \r\n \r\n 201.4 | \r\n
| \r\n Operating EBITDA\r\n margin (%) | \r\n \r\n 9 | \r\n \r\n 27 | \r\n \r\n 25 | \r\n
| \r\n Interest coverage\r\n (x) | \r\n \r\n 2.4 | \r\n \r\n 7.9 | \r\n \r\n 5.1 | \r\n
| \r\n Adjusted net\r\n leverage (including acceptances); TTM | \r\n \r\n 4.6 | \r\n \r\n 2.0 | \r\n \r\n 3.6 | \r\n
| \r\n Source: JSWL, Ind-Ra | \r\n \r\n \r\n | \r\n \r\n \r\n | \r\n \r\n \r\n | \r\n
Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.
Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.
","participationDisclosures":null,"disclaimer":"ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: https://www.indiaratings.co.in/ratingdefinitions. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.
","metaTags":"affirmation","effectiveDate":"Mar 08, 2023 | JSW Steel Limited","effectiveDateTime":"0001-01-01T00:00:00","dateOfCreation":"Mar 08, 2023","isDeleted":false,"isMigratedData":false,"viewCount":758,"facebookShareCount":0,"linkedInShareCount":0,"googlePlusShareCount":0,"twitterShareCount":0,"ratingCriteriaReportsIDs":"163,173,5","pressReleaseStatus":"Publish","activity":"Created By UserID: 65896","lastActivityDate":"3/8/2023 2:56:43 PM","currentRatings":"| \r\n Instrument Type | \r\n \r\n Date of Issuance | \r\n \r\n Coupon Rate | \r\n \r\n Maturity Date | \r\n \r\n Size of Issue (billion) | \r\n \r\n Rating/Outlook | \r\n \r\n Rating Action | \r\n
| \r\n Non-convertible debentures (NCDs)* | \r\n \r\n - | \r\n \r\n - | \r\n \r\n - | \r\n \r\n INR100 | \r\n \r\n IND AA/Stable | \r\n \r\n Affirmed | \r\n
\r\n\r\n
*Details\r\nin Annexure
| \r\n Instrument Type | \r\n \r\n Rating Type | \r\n \r\n Rated Limits (billion) | \r\n \r\n Current Ratings | \r\n \r\n Historical Rating/Outlook | \r\n ||||
| \r\n 9 March 2022 | \r\n \r\n 6 April 2021 | \r\n \r\n 12 March 2021 | \r\n \r\n 30 September 2020 | \r\n \r\n 11 November 2019 | \r\n ||||
| \r\n Long-Term Issuer Rating | \r\n \r\n Long-term | \r\n \r\n - | \r\n \r\n IND AA/Stable | \r\n \r\n IND AA/ Stable | \r\n \r\n IND AA/ Stable | \r\n \r\n IND AA/ Stable | \r\n \r\n IND AA/ Negative | \r\n \r\n IND AA/ Negative | \r\n
| \r\n Non-convertible debenture | \r\n \r\n Long-term | \r\n \r\n INR100 | \r\n \r\n IND AA/Stable | \r\n \r\n IND AA/ Stable | \r\n \r\n IND AA/ Stable | \r\n \r\n IND AA/ Stable | \r\n \r\n IND AA/ Negative | \r\n \r\n IND AA/ Negative | \r\n
| \r\n Instrument | \r\n \r\n ISIN | \r\n \r\n Date of Issuance/ Allotment | \r\n \r\n Coupon Rate (%) | \r\n \r\n Maturity Date | \r\n \r\n Size of Issue (billion) | \r\n \r\n Rating/Outlook | \r\n
| \r\n NCDs | \r\n \r\n INE019A07241 | \r\n \r\n 18 January 2013 | \r\n \r\n 10.34 | \r\n \r\n 18 January 2024 | \r\n \r\n INR10 | \r\n \r\n IND AA/Stable | \r\n
| \r\n NCDs | \r\n \r\n INE019A07266 | \r\n \r\n 19 July 2013 | \r\n \r\n 10.02 | \r\n \r\n 19 July 2023 | \r\n \r\n INR5 | \r\n \r\n IND AA/Stable | \r\n
| \r\n NCDs | \r\n \r\n INE019A07258 | \r\n \r\n 20 May 2013 | \r\n \r\n 10.02 | \r\n \r\n 20 May 2023 | \r\n \r\n INR5 | \r\n \r\n IND AA/Stable | \r\n
| \r\n NCDs | \r\n \r\n INE019A07431 | \r\n \r\n 12 Oct 2020 | \r\n \r\n 8.50 | \r\n \r\n 12 October 2027 | \r\n \r\n INR40 | \r\n \r\n IND AA/Stable | \r\n
| \r\n NCD (unused) | \r\n \r\n \r\n | \r\n \r\n \r\n | \r\n \r\n \r\n | \r\n \r\n \r\n | \r\n \r\n INR40 | \r\n \r\n IND AA/Stable | \r\n
| \r\n Total | \r\n \r\n \r\n | \r\n \r\n \r\n | \r\n \r\n \r\n | \r\n \r\n \r\n | \r\n \r\n INR100 | \r\n \r\n \r\n | \r\n
| \r\n Instrument Type | \r\n \r\n Complexity | \r\n
| \r\n NCDs | \r\n \r\n Low | \r\n
\r\n\r\n
For details on\r\nthe complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
About India Ratings and Research: India Ratings and Research (Ind-Ra) is committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market.
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