Indian steel Industry to require Rs.12 trillion funding to achieve 300 Mt capacity by 2030
Biznextindia: While India’s ‘National Steel Policy 2017’ aims to achieve 300 Million tonne (Mt) Steel capacity by 2030 from the current capacity of 140 Mt, funding could be a major issue before the steel industry.
India Ratings and Research (Ind-Ra) has estimated that the Indian steel industry would need funding of around Rs. 12 trillion (12 lakh) in the next 10 years. Out of this 10.1 trillion would be needed as long-term capital and another 1.8 trillion would be needed for working capital, considering a net cash cycle of around 90 days.
“The steel industry, by being capital intensive, would need funding of around INR10.1 trillion as long-term capital over the next 10 years, to achieve target capacity. Additionally, INR1.8 trillion will be needed for working capital, considering a net cash cycle of around 90 days. Considering 2:1 debt-equity, the debt requirement will be around INR7.9 trillion and equity will be INR4 trillion. We believe of the total equity requirement, 55%-60% will be required to be met by fresh equity and the balance can be met by internal accruals” Ind Ra said.
Ind-Ra believes that the government has to play a vital role to achieve the ambitious target. Apart from speeding up the regulatory approval process, the government needs to infuse more capital in the PSUs to support their capacity addition process.
“Considering the leveraged balance sheet of steel companies and low debt servicing capabilities due to low and volatile profitability, it may be difficult for existing players to raise significant debt and put up large capacities year on year. The industry may require the entry of new, financially strong players or global large steel producers to support the capacity addition target. Ind-Ra expects central public sector enterprises to be under pressure to build capacity for catering to any gap, after considering the capex by the private sector. The capex undertaken by public sector enterprises may further stretch the metrics of public undertakings, unless the government infuses funds to support capex instead of adding debt” Ind-Ra said.
Apart from funding, the industry may face other issues like import dependence of Coking Coal, land acquisition and tepid regulatory approval process.