Stressed steel plants acquired via IBC seeing faster turnaround: CRISIL Ratings

The ongoing steel upcycle will also mean stronger-than-expected realisations over the medium term.

Jul 22, 2021 05:07 IST India Infoline News Service

steel sheet
Stressed steel plants, acquired under the Insolvency and Bankruptcy Code (IBC) resolution process are seeing faster returns. Despite pandemic-linked blips, domestic demand outlook remains strong, which has helped acquirers ramp up utilisation levels.

The ongoing steel upcycle will also mean stronger-than-expected realisations over the medium term. Consequently, acquirers may see ~20% faster payback and are well set to tap the brownfield potential housed under these assets.

This is as per a CRISIL study of five stressed steel capacities, totalling 21 million tonne (MT), which were acquired under NCLT-1, mostly by other primary steel producers. These assets accounted for 70% of total financial claims resolved or liquidated under IBC in the steel sector till March 31, 2021.

For acquirers, while the debt inherited via acquisition became sustainable after the haircuts, a turnaround in operational performance led by improved efficiency was the key for a reasonable payback period of around six years, given average domestic steel prices of ~ Rs 39,000 per tonne in fiscal 2018.

Expectedly, the acquirers have been able to turn these capacities around — utilisation rates improved from 65% in fiscal 2018 to more than 80% by the end of fiscal 2021 — riding on operational debottlenecking, improved raw material sourcing, access to working capital and strong managerial oversight.

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