Moody's Confirms JSW Steel's Ba2 Ratings With Negative Outlook Due To Covid

Moody's Investors Service has confirmed JSW Steel Ltd's Ba2 corporate family rating and Ba2 senior unsecured debt rating with a negative outlook.

"The rating confirmation recognises that while JSW's credit profile will deteriorate reflecting the challenges brought by the pandemic, we believe that the company's financial metrics will likely recover to levels commensurate with the current ratings by the fiscal year ending March 2023 (fiscal 2023)," said Kaustubh Chaubal, Moody's Vice President and Senior Credit Officer.

"However, JSW's leverage and coverage will remain weak until that time, and the negative outlook indicates the risk of a downgrade if the steel industry does not recover as we currently expect or if there is a slower-than-anticipated recovery in the company's financial metrics," added Chaubal.

Moody's expects JSW's leverage, as measured by adjusted debt/adjusted EBITDA, will increase to an estimated 6.4x by the end of fiscal 2021, up from 6x a year earlier, and stay in breach of the 4.5x downgrade trigger for the company's corporate family rating Ba2.

However, JSW should be able to restore its metrics to appropriate levels by fiscal 2023, considering its relatively strong business profile, brand strength and technological capabilities, which will help the company sustain above-average profitability.

"While the deterioration in demand caused by the pandemic will cause JSW's EBIT margin to decline to single digits for the first time in 14 years, the company's profitability at 8 per cent will still be at the higher end of its Ba rating range," said Chaubal.

Moody's expects steel consumption in India, JSW's key operating market, to contract by at least 15 per cent through fiscal 2021 because of weak automotive and manufacturing demand even as infrastructure investments rise. India's economic growth will also remain materially lower than in the past with real GDP shrinking 3 per cent.