FY19: year of steel industry consolidation?

M&A and brownfield measures likely to be primary route of expansion in short to medium term

- Madhumita Mookerji

The Indian steel industry has traversed quite a long way to have now entered a new development stage, post de-regulation, riding high on a resurgent economy and increasing demand for steel. Rapid production volume increase, since our focus has traditionally been on volume rather than quality or sales, has resulted in India becoming the second-largest producer of crude steel in 2017. The country was the largest producer of sponge iron or DRI in the world during the period 2003-2015 and emerged as the 2nd largest global producer of DRI in 2016 (after Iran). India is also the 3rd largest finished steel consumer in the world.

Most analysts pin hopes on an expected 7 percent or thereabout growth in the steel industry over the next couple of years and the very fact that our per capita consumption level is a mere 61 kg against the global average of 208 kg, leaves the door ajar for growth in consumption, going ahead.

But, with what kind of feelings are we ending financial year 2017-18, in the steel industry?

The balance sheets of most of the steel companies are already stretched a bit due to the prolonged low pricing scenario, at least till FY16. Even though prices improved in the last one year, there was no significant respite. Also, most of the players have been in the process of expanding through the brownfield route, spending more in terms of capex.

Goutam Chakraborty, Assistant VicePresident, Institutional Research, Emkay Global Financial Services, tells Steel Insights: “We expect, most of the companies will be in the mode of higher capex in the coming 2-3 years. Higher steel prices would be helpful in this regard to maintain better covenants.”