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Rebounding margins may help Indian steel firms to withstand global trade challenges: Ind-Ra

Credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that the Indian steel companies are likely to see a marginal risk of global trade war with a domino effect, noting that the companies' rebounding margins may help them to withstand these global trade challenges.

Further, the rating agency does not expect margins of domestic players to be under material threat in the near term, as only about 10% of the India's surplus capacity caters to the export markets, primarily Europe and neighbouring countries. Besides, the report said that potential correction in input prices and China's supply discipline will benefit the margins. Though, as per the report, an unexpected deceleration in Chinese demand growth and increased intensity of global trade war could counter the margin improvement of steel players.

Ind-Ra is expecting further deleveraging of balance sheet of steel companies during current financial year on the back of sustained margins and absence of funding of loss by debt. Moreover, the report noted that resolution of stress companies will lead to debt reduction due to haircut by lenders as well as expected improvement in margin on change of management. However, it said that debt-led capacity expansion over and above the inorganic expansion will result in steady leverage for a few large players.

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