Rating Rationale
May 23, 2018 | Mumbai
Jindal Steel and Power Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.25942.47 Crore (Reduced from Rs.27607 Crore)
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
Rs.3212 Crore Non Convertible Debentures CRISIL BBB-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB-/Stable/CRISIL A3' ratings on the bank facilities and NCD of Jindal Steel and Power Limited (JSPL).
CRISIL has also withdrawn its rating on proposed long term bank loan facility of Rs 1,664.53 crore based on management's request, which is in line with CRISIL's policy on withdrawal of its rating.
CRISIL has on May 09, 2018, upgraded its ratings on the bank facilities and non-convertible debentures of JSPL to 'CRISIL BBB-/Stable/CRISIL A3' from 'CRISIL D/CRISIL D'.
The upgrade reflects significant improvement in liquidity post it's Qualified Institutional Placement (QIP) of Rs. 1,200 crore, divestments of its non-core assets of around Rs.1800 crore, and successful refinancing of its term loans in India and overseas operations.
The upgrade also factors in commencement of Blast Furnace (BF) of 3.2 Million tonnes (MT) and Basic Oxygen Furnace (BOF) of 2.5 MT at its Angul plant in Odisha, which not only enhanced finished steel capacity but also provided more flexibility in operations. CRISIL expects steady improvement in utilisation levels of its steel capacities in India over the next 12 months. In the absence of any significant capital expenditure (capex), this will help generate free cash flow, thus reducing leverage over the medium term.
Consequently, financial risk profile is expected to improve, with debt to earnings before interest, taxes, depreciation and amortizations (EBIDTA) reducing to around 4.5 times over the medium term. CRISIL has also factored in management's articulation to maintain adequate liquidity cushion in JSPL at all times.
The ratings continue to reflect JSPL's superior position in the value added long steel products, improving operating efficiencies and well diversified operations. These strengths are partially offset by weak financial risk profile, limited raw material integration and susceptibility to cycles.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of JSPL and its subsidiaries; this is because of the operational and financial linkages among the entities, collectively referred to as the JSPL group.

Key Rating Drivers & Detailed Description
* Superior market position in value added long steel products: JSPLs has a healthy market share in the fragmented long steel market backed by its ability to manufacture higher grades and value added products. It makes specialised structural steel (medium and light structural mill and railway and universal beam mill) and high grade plates (with application in boilers for power plants and defence equipment), which are relatively less vulnerable to demand slowdown. While long product segment is fragmented comprising few large integrated players and numerous secondary producers, JSPL has ability to command premium due to its superior product profile and an established brand. Recent commissioning of one of the most cost effective BF-BOF plant at Angul will help strengthen market position over the medium term.

* Improving operational efficiency: Per tonne operating profitability for JSPL's India steel operations have significantly improved over the last two fiscals to estimated Rs 10,900 per tonne in fiscal 2018 from about Rs 7,300 per tonne in fiscal 2016. This is largely driven by steps taken to improve its logistical linkages for raw material sourcing and control over fixed overheads. Proximity of its plants to coal and iron ore mines, captive power units, railway sidings and nearness to Paradip port further supports its operating efficiencies. Improving capacity utilisation may also lead to better operating margin due to higher fixed cost absorption. Consolidated operating margins should rise and sustain at 23%-25% over the medium term.
* Well diversified operations: In addition to steel operations in India, JSPL benefits from the diversity offered through its 3,400 megawatt (MW) independent power plants (IPPs) at Tamnar and steel manufacturing operations at Shadeed, Oman. Shadeed's operations benefit from improving utilisation at around 80-85% and efficiencies through proximity to gas source. Though only 30% of IPP's capacities are tied up with power purchase agreements (PPAs), these capacities benefit from their low capital costs with current debt per MW at only Rs 2.24 crore. Consequent low cost of generation and hardening of merchant rates are likely to benefit power operations over the medium term. Diversified business operations reduces vulnerability due to concentration in sectoral and geographic profiles.
* Weak albeit improving financial risk profile: Financial risk profile has been weak, marked by sizeable debt, consequent to significant capex post fiscal 2011 towards Angul project, power plant in Jindal Power Ltd (JPL), acquisition of overseas assets and penalties on de-allocated coal mines. While, a part of the Angul project was commissioned in fiscal 2013 and 2014, the returns were subdued due to lower steel realisations and de-allocation of coal mines. Consequently debt to EBITDA rose to nearly 13 times by the end of fiscal 2016. Over last one year, the company took steps to improve capital structure including capital infusion through QIP/rights issues and divestment of non-core assets. This coupled with ramp-up of operations and absence of any significant capex will reduce debt/EBITDA to around 4.5 times by end of fiscal 2019. Company's debt profile is also constrained by large short term debt and large repayment requirement, which constrain its current ratio to below 1 time. While these are likely to get refinanced in due course, they will continue to constrain financial risk profile. Nonetheless, CRISIL draws comfort from management's commitment to maintain a liquidity cushion, at all times going forward.
* Susceptibility to demand and price risk: Demand for long steel products depends on the level of construction and infrastructure activities in the country. While there has been a significant push by government on steel-intensive sectors such as Railways and infrastructure, any downturn in economic cycle will adversely affect demand. Furthermore, the steel industry remains exposed to global steel prices, which declined significantly in fiscal 2016 and impacted realisations of players even in the domestic market. However, steel realisations have recovered in fiscal 2017 and 2018 following protective measures (anti-dumping duty, and minimum import prices) taken by the government and a spike in global steel prices. Any significant change in demand and pricing scenario will remain key monitorables.
* Low raw material linkage, partially offset by proximity to raw material sources: Access to captive iron ore mines meets one-fifth of total iron ore requirement. Furthermore, absence of long term PPAs for around 70% of JSPL's power capacity at Tamnar exposes it to offtake risk and to volatility in merchant rates. Moreover, this capacity is exposed to fuel risk due to absence of fuel linkages ' post de-allocation of its coal mines pursuant to the Supreme Court order in September-2014. Nonetheless, proximity of steel and power plants to coal and iron resources lends comfort. Ability to tie in these resources for the long term, will remain a monitorable.
Outlook: Stable

CRISIL believes JSPL's operating performance will improve over the medium term, which, coupled with free cash flows due to absence of major capex, will also improve the financial risk profile.
Upward Scenario
* Higher than expected improvement in operating performance
* Higher than expected reduction in debt leading to significant improvement in capital structure
Downward Scenario
* Sustained high leverage and deterioration in liquidity
* Downturn in industry cycle adversely impacting profitability

About the Company

The JSPL group, part of the diversified OP Jindal group, is one of India's major steel producers, and has a sizeable presence in power generation and mining. The group has an installed capacity of 8.6 million tonnes per annum (mtpa) of steel with plants at Raigarh (Chhattisgarh) and Angul (Odisha).
JPL, a subsidiary of JSPL, currently has a total commissioned power capacity of 3400 MW. Through its fully owned subsidiary, Jindal Steel & Power (Mauritius) Ltd (JSPML), JSPL had acquired Shadeed Iron & Steel Company (Shadeed) in Oman, which has a 1.5 mtpa gas-based hot-briquetted iron plant, forward integrated to manufacture 2 mtpa of steel; The group's international operations include its interest in mining assets in resource-rich locations such as Australia, Indonesia, South Africa and Mozambique.

Key Financial Indicators (CRISIL adjusted numbers)
As on/for the period ended March 31 Unit 2018 2017
Operating Income Rs Crores 27,973 20,745
Profit after tax (PAT) Rs Crores (1,616) (2,538)
PAT margin % -5.8 (12.2)
Adjusted debt/adjusted networth Times 4.15 4.34
Interest coverage Times 1.68 1.28

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs Cr) Rating Assigned
with Outlook
NA Cash Credit NA NA NA 3,600.00 CRISIL BBB-/Stable
NA Letter of Credit NA NA NA 4,214.76 CRISIL A3
NA Proposed Long-Term
Bank Loan Facility
NA NA NA 3,500.00 CRISIL BBB-/Stable
NA Proposed Long-Term
Bank Loan Facility
NA NA NA 1,664.53 Withdrawn
NA Proposed Short-Term
Bank Loan Facility
NA NA NA 2,500.0 CRISIL A3
NA Term Loan - 1 NA 9.6-12.45% Oct-18 190.05 CRISIL BBB-/Stable
NA Term Loan - 2 NA Mar-22 799.94 CRISIL BBB-/Stable
NA Term Loan - 3 NA Oct-23 865.0 CRISIL BBB-/Stable
NA Term Loan - 4 NA Mar-24 1274.66 CRISIL BBB-/Stable
NA Term Loan - 5 NA Dec-24 1,983.72 CRISIL BBB-/Stable
NA Term Loan - 6 NA Mar-36 7,014.33 CRISIL BBB-/Stable
INE749A08126 Non-Convertible Debentures 11-Aug-14 10.48% 10-Aug-19 300.00 CRISIL BBB-/Stable
INE749A08134 Non-Convertible Debentures 18-Dec-14 9.70%# 18-Dec-18 330.00 CRISIL BBB-/Stable
INE749A08142 Non-Convertible Debentures 18-Dec-14 9.70%# 18-Dec-19 330.00 CRISIL BBB-/Stable
INE749A08159 Non-Convertible Debentures 18-Dec-14 9.70%# 18-Dec-20 340.00 CRISIL BBB-/Stable
NA Non-Convertible Debenture^ NA NA NA 1,912.00 CRISIL BBB-/Stable
^These NCDs are yet to be raised
#State Bank of India base rate + 1%
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST    --    --  21-04-17  Withdrawal  09-03-16  CRISIL D  14-11-15  CRISIL A2+  CRISIL A1+ 
                15-02-16  CRISIL A4+/Watch Negative  11-09-15  CRISIL A1   
                21-01-16  CRISIL A3+/Watch Negative  10-04-15  CRISIL A1+   
Non Convertible Debentures  LT  3212.00
CRISIL BBB-/Stable  09-05-18  CRISIL BBB-/Stable  21-04-17  CRISIL D  09-03-16  CRISIL D  14-11-15  CRISIL A/Negative  CRISIL AA-/Stable 
                15-02-16  CRISIL BB+/Watch Negative  11-09-15  CRISIL A+/Negative   
                21-01-16  CRISIL BBB+/Watch Negative  10-04-15  CRISIL AA-/Negative   
Fund-based Bank Facilities  LT/ST  21727.71  CRISIL BBB-/Stable/ CRISIL A3  09-05-18  CRISIL BBB-/Stable/ CRISIL A3  21-04-17  CRISIL D/ CRISIL D  09-03-16  CRISIL D/ CRISIL D  14-11-15  CRISIL A/Negative/ CRISIL A2+  CRISIL AA-/Stable/ CRISIL A1+ 
                15-02-16  CRISIL BB+/Watch Negative/ CRISIL A4+/Watch Negative  11-09-15  CRISIL A+/Negative/ CRISIL A1   
                21-01-16  CRISIL BBB+/Watch Negative/ CRISIL A3+/Watch Negative  10-04-15  CRISIL AA-/Negative/ CRISIL A1+   
Non Fund-based Bank Facilities  LT/ST  4214.76  CRISIL A3  09-05-18  CRISIL A3  21-04-17  CRISIL D  09-03-16  CRISIL D  14-11-15  CRISIL A2+  CRISIL A1+ 
                15-02-16  CRISIL A4+/Watch Negative  11-09-15  CRISIL A1   
                21-01-16  CRISIL A3+/Watch Negative  10-04-15  CRISIL A1+   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 3600 CRISIL BBB-/Stable Cash Credit 3600 CRISIL BBB-/Stable
Letter of Credit 4214.76 CRISIL A3 Letter of Credit 3800 CRISIL A3
Proposed Long Term Bank Loan Facility 3500 CRISIL BBB-/Stable Proposed Long Term Bank Loan Facility 4340 CRISIL BBB-/Stable
Proposed Long Term Bank Loan Facility 1664.53 Withdrawn Proposed Short Term Bank Loan Facility 2500 CRISIL A3
Proposed Short Term Bank Loan Facility 2500 CRISIL A3 Term Loan 13367 CRISIL BBB-/Stable
Term Loan 12127.71 CRISIL BBB-/Stable -- 0 --
Total 27607 -- Total 27607 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Steel Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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