SAIL's capex prog has magnified impact of weak prices: Fitch

India's largest steelmaker SAIL's financial profile has deteriorated due to prolonged weakening in international steel prices and its capacity expansion has "magnified" the impact of weak prices, Fitch today said.
Fitch Ratings downgraded state-owned SAIL's Long Term Foreign Currency Issuer Default Rating (IDR) to 'BB' from 'BBB-' and the outlook is negative, it said in a statement.
The downgrade follows deterioration in SAIL's financial profile after a prolonged weakening in international steel prices, the ratings agency said.
"SAIL's debt-funded capex programme has magnified the impact of weak prices," it added.
Fitch expects SAIL's financial profile to remain weak for the next 18 months and improve only moderately towards the end of the financial year ending March 21, 2018 (FY'18).

Indian steel demand is likely to improve over the medium-term, which will support better profitability at SAIL, it said.

The Negative Outlook reflects the risk of further weakening in steel prices, increase in Indian steel imports and weaker-than-expected steel demand over the next 12-18 months, which would make it difficult for SAIL to improve its profitability and thus its leverage, Fitch said.
Indian steel makers have been battling falling steel prices, high imports and muted demand during the last 12 months.
The imposition of a minimum import price in February 2016,
and the extension of a safeguard duty on certain steel imports till March 2018 will provide some relief to domestic producers, the agency said.

Indian steelmakers' profitability is likely to improve during January-March 2015-16 and in the first half of this fiscal.
"However, muted demand and expectations of overcapacity will limit the benefits of the measures for Indian steel producers in 2016. Fitch expects profitability of Indian steel producers, including SAIL, to remain weak in FY'17," it added.
SAIL's financial profile has deteriorated significantly due to the ebitda losses and increasing debt levels driven by its capex, it added.
"We expect SAIL's financial profile to remain weak in 2016-17 with minimal improvement in ebitda margin and additional debt from the final stage of its capex programme," it said.

The Maharatna firm's financial profile is likely to improve only from 2017-18, when sales volumes increase and profitability widens following better operating efficiency and cost control measures, Fitch noted.