NMDC Steel Limited — Credit Ratings, 27-12-2024: Credit Rating- Revision

India Ratings & Research has affirmed NMDC Steel Limited's long-term debt rating at ‘IND A-’, while revising the outlook to 'Negative' from 'Stable'. The agency downgraded the short-term rating from ‘IND A1’ to ‘IND A2+’. This reflects weaker-than-expected performance due to slower operational ramp-up and operational challenges leading to lower asset utilization.

Key reasons for the outlook revision include anticipated negative EBITDA and cash flow in FY25, attributed to teething problems post-commissioning. Despite expecting some operational improvement in the latter half of FY25, significant debt servicing obligations loom, coupled with the expectation of modest profitability.

The company's liquidity remains adequate, supported by a solid free cash balance and unutilized working capital limits. Its strategic benefits arise from a long-term iron ore sourcing arrangement with NMDC, which provides steady raw material availability. However, the impending government divestment poses risks to operational and financial flexibility, as it may result in a loss of strategic support.

In light of these developments, investors are advised to maintain caution, given the expected operational volatility and potential pressures on profitability. Monitoring future operational improvements will be crucial for assessing the full impact of the rating action.