MIP may increase steel companies profit margins
Business Standard reported that the minimum import price on steel might have propped up the profit margins of companies to some extent, but it has done nothing much to steel manufacturers’ debt-servicing abilities. According to Crisil Ratings, MIP and the anti-dumping measures will lend a marginal fillip to the profit margins over the medium term, but companies’ debt-servicing abilities will remain weak given the indebtedness levels.
The report said that “The average domestic realizations are expected to increase marginally this financial year. This, along with a 4 to 6% expected growth in domestic demand on the back of revival in user segments such as infrastructure and automobiles, expected decline in imports, and few capacity additions, will lead to improving operating rates.”
In the first quarter, operating margins had improved on lower input prices, which had helped the steel industry improve operating margins by 500 basis points.
Crisil’s review for the second quarter says that the earnings before interest, taxes, depreciation and amortisation (Ebitda) margins are seen up 150 bps, riding on a 2 to 4% increase in prices.
According to Mr Sunil Srivastava, deputy managing director, State Bank of India, with the increase in Ebitda levels, lenders are able to appropriate 5 to 15% from each sale proceeds for at least part-interest realization. He said that “Post-MIP, there has been an anti-dumping duty. This has led to stability in the market and prices have gone up.”
Mr Srivastava said that “We are seeing some interest from investors and funds. We are evaluating the interest in SDR (strategic debt restructuring) companies and for promoters desirous of such alliances outside SDR.”
However, a look at indebted companies such as Electrosteel Steels, VISA Steel, Monnet Ispat Energy and Bhushan Steel shows that the operating profit margins at the end of June 2016 had improved for most, but the interest cost had also shot up for these firms.
Source : Business Standard