Mumbai - Stressed steel asset acquisitions by large operating companies will lead to an increase in the sector consolidation, particularly flat steel market, a report said.
This should improve the bargaining power of the domestic players with reduced chances of undercutting by stressed companies to operate plants, India Ratings said in its report here.
Flat products are primarily used in auto and other consumer goods segments.
The National Company Law Tribunal (NCLT) in May this year approved Tata Steel’s resolution plan for debt ridden Bhushan Steel under the Insolvency and Bankruptcy Code (IBC). The NCLT also gave its approval to the consortium of JSW Steel and AION Investments Private II Ltd to acquire cash-strapped Monnet Ispat and Energy last month.
Ind-Ra expects further deleveraging of balance sheet of steel companies in FY19 backed by sustained margins coupled with absence of funding of loss by debt.
At the same time, resolution of stressed companies will lead to debt reduction due to haircut by lenders as well as expected improvement in margin on change of management could reduce the sector leverage.