NMDC Steel Limited — Credit Ratings, 28-01-2025: Credit Rating

CRISIL Ratings has downgraded the long-term rating of NMDC Steel Ltd's Term Loan from 'Crisil A-' to 'Crisil BBB+/Watch Developing.' The downgrade reflects concerns about the company's operational performance and financial health, particularly following slower-than-expected ramp-up in production since the plant commenced operations in August 2023. As of June 2024, the plant's utilization rate reached 48%, up from 38%, but the company still experienced an operating loss in the first quarter of fiscal 2025, although this loss is significantly lower compared to previous periods.

The downgrade is warranted by ongoing operational challenges, including a reduction in sales volume due to logistical issues. However, management anticipates an improvement in sales volume, which is crucial for debt servicing. The company maintains a healthy liquidity position with unencumbered cash of approximately ₹184 crore and unutilized fund-based limits of ₹800 crore.

The ratings remain on watch due to uncertainties surrounding the ongoing divestment process by the Government of India, which holds a majority stake in NMDC Steel. Until the divestment is completed, the company is expected to continue receiving support from NMDC. Future performance, particularly in terms of achieving operational profitability and timely debt servicing, will be critical in determining the direction of the rating.