New Delhi: Steel prices have come down about 10 percent in the country From Rs 42,000 per tonne to Rs 38,000 per tonne in the eight month period from January of the current year to August, resulting to shrinking EBITDA levels of the steel manufacturers, according to analysis by CRISIL.
The earnings before interest, tax, depreciation and amortisation (EBITDA) spreads of the steel companies shrunk by a massive 420 basis in the April-June period of the current year as compared to the same period of 2018. Even in the remainder of the current fiscal, there are weak prospects for the manufacturing firms as there is poor domestic demand and lower exports expected.
The steel industry grew 7.5-8 percent in the last two financial years but the growth is likely to be juts 4-5 percent in the current fiscal because of lower construction investment and subdued automobile market.
“Steel prices have not been able to recover despite a cost push, and hopes of a rally are fading now. We therefore believe weak realisations will shear 350-370 bps off the sector’s Ebitda margins for the first half and 200-250 bps for the fiscal as a whole, reversing a three-year climb. Large non-integrated players will see their margins shrink more, by 300-350 bps this fiscal, given weak flat steel market and a 3-5% rise in iron ore prices amidst weak realizations,” said Prasad Koparkar, Senior Director, CRISIL Research.
These factors will pull down the sector’s aggregate operating profit. The aggregate operating profit is estimated to fall 12-13 percent in the current fiscal.