State-owned steel major, SAIL (formerly Steel Authority of India Ltd), will teeter on a financial tightrope.
Facing a Q3FY25 debt position of ₹33,000 crore, up from FY24-levels, the company is looking to slash debt to ₹30,000 crore in FY25, and free up cash for a colossal ₹1.1-1.2 lakh crore expansion, Amarendu Prakash, Chairman and Managing Director, SAIL, told businessline.
The 15-million-tonne per annum (mtpa) addition will be over its existing 20-mtpa capacity. The steel titan is betting on stable coking coal prices — mostly imported, tapping into low-cost feedstock (coal supply) markets of Africa and “across other geographies”, and a cautious decarbonisation push to keep its footing.
During the expansion phase, it will target debt-to-equity ratio of 1:1; however, execution risk remains as expansion capex front-loads FY27-onwards.
“We’ve used less number of assets to produce the same (volume production),” Prakash said, hinting at a lean operation that’s dodged the full brunt of global price swings.
The FY25 debt-equity ratio is expected in the 0.7 per cent range, and free cash flows at ₹8,000-crore levels, by analysts.
“So if you look at the debt-equity ratio, that is in control. The debt reduction plans, underway, are in preparation of the major capacity addition,” Prakash added.
Capex continues to be pushed through a mix of long-term debt and short-term cash and operational savings.
“We will look at distribution of debt between long term and short term, depending on how it comes to us,” he said. “There are no refinancing plans at the moment. But we get debt at reasonable cost.”
Coal stability
For SAIL, it’s a big-ticket gamble — debt reduction and freeing up of cash — hinges on stability in imported coal prices. After spiking to an unsustainable $400-odd per tonne levels in 2023, coking coal, India’s steelmaking lifeblood, has settled at $200-odd per tonne over the last few weeks. For a sector tethered to coal-fired blast furnaces, it’s a lifeline.
SAIL will also be looking beyond traditional coking coal suppliers — Australia and now Russia. It will explore new routes via African nations — South Africa, Namibia, and others. Its own mines in Mozambique will be ramped up, capacity doubled to 4 mtpa.
“We’ve got an open EOI mechanism where other countries can participate,” he said, adding that steel price “is where the concerns are.”
Volatile global markets
Global steel markets are under pressure and Prakash admits the geo-political scenario is “volatile”.
Chinese overcapacity means it is pushing out the excess stocks of 110 mt or more into global markets, adversely impacting prices and putting pressure even on India’s domestic markets and prices.
The US tariffs, locked at 25 per cent, have driven American hot-rolled coil (HRC) prices up, even when global HRC languishes at less than $600 per tonne range.
“Trade flows are expected to change with EU unable to push its steel into the US. Canada and Mexico too will suffer. But excess stocks in EU, where quotas and safeguard measures are being put up means Asian stocks (from China, Japan or Korea) that went to EU would not find its way into India,” he explained.
Green steel
The capex plans, Prakash says, is not just about scale. It is a calculated nod to decarbonisation too.
SAIL plans to bring emissions down to below 2.2 tonnes of CO2 (emitted) per one tonne of steel produced, by 2031. This would be lower than India’s current 2.54 tonne carbon emission average.
India benchmarks ‘green steel’ as having emission levels of below 2.2 tonnes. Incidentally, SAIL is not making a full switch to electric arc furnaces or doing away with blast furnaces, like the UK.
“Technology selection continues to be an ongoing topic. But primarily India is going to stick to blast furnace — basic oxygen furnace route,” he said.
In Phase I, SAIL will add 7.5 mtpa capacity by FY31, where it has got stage-I approval for the IISCO greenfield steel plant, Bokaro and Durgapur expansion and for phase II, it is in the process of getting approvals for the Rourkela and Durgapur steel plant which will add another 7.5 mtpa capacities.
