Steel industry to rebound strongly but MSMEs may trail: CRISIL SME Tracker
CRISIL Research projects the overall Indian steel industry’s revenue to rise 50-60 per cent year on year in the current fiscal year (FY22), driven by 15-17 per cent growth in domestic demand and soaring realisations. But micro, small and medium enterprises (MSMEs) are likely to see lower growth, as they have a higher share of long steel in the product mix.
Though we foresee long steel prices rising 26-28 per cent this fiscal, it will be lower than the 48-50 per cent expected for flat steel. While that will buttress top line growth, high iron ore and coking coal costs will impact margin expansion. The double-digit recovery forecast for FY22 follows a 6 per cent fall in demand in FY21, owing to the pandemic’s disruption in the first half.
MSMEs, which account for 90-95 per cent of re-rollers, were hit harder by the pandemic, owing to low export potential, logistical and labour issues in the first quarter of FY21, and raw material shortages due to delays in operation of auctioned iron ore mines in Odisha. MSMEs also had to contend with oxygen shortage and plant shutdowns during the pandemic’s second wave.
In comparison, large integrated steel manufacturers remained unscathed, as a surge in exports cushioned the fall in domestic volume. Indeed, their revenue sharply rebounded and they earned bumper profit margins through the end of FY21, as steel prices soared to never-seen-before levels.
Apart from the product mix lowering growth for MSMEs in FY22, exports are also almost negligible. MSMEs mostly make long steel, pig and sponge iron, the trade of which is low in the global market. With the domestic market forming 97-98 per cent of MSME steel sales, their revenues are largely dependent on domestic demand-supply dynamics and input costs.
Source: Business Standard