ICRA has downgraded the long-term rating outstanding on the Rs 927.5 million (enhanced from Rs 645.5 million) term loan facilities and the Rs 2.15 billion (enhanced from Rs 1.40 billion) fund based facilities of Steel Exchange India (SEIL) to 'B' from 'B+'.

ICRA has reaffirmed the short-term rating of 'A4' outstanding on the Rs 2.61 billion non-fund based facilities (enhanced from Rs 1.11 billion non-fund based facilities; includes Rs 20 billion proposed fund based facilities re-assigned as non-fund based facilities) of SEIL.

The revision in long-term rating reflects the sharp decline in operating margins during the current fiscal, with demand being impacted on account of the ongoing slowdown in the steel industry. The decline in operating margin, along with high interest costs, has led to net losses and stretched coverage metrics during the first half-year of current fiscal.

The ratings consider the company's tight liquidity position, on the back of large debt repayments; and its adverse capital structure, attributed to debt-funded capital expenditure in the past. However, the ratings also consider the availability of power from SPL, which is expected to insulate the company from volatility in power availability to an extent. While the ongoing slowdown in steel industry is expected to have an adverse impact on the revenue growth and accruals at least in the near term, demand outlook for steel remains favourable in the long term on the back of expected growth in infrastructure and construction sectors.

SEIL's promoters have long-standing experience in the steel business and the company has a well-established sales and distribution network. However, the fragmented and commoditised nature of the TMT bars manufacturing industry heightens competition and restricts pricing flexibility. Further, its accruals remain vulnerable to volatilities in foreign exchange rates, in the absence of a consistent hedging policy.

ICRA has considered the consolidated business and financial profiles of SEIL and SPL, in which SEIL holds 39.2% equity stake) for the purpose of ratings, since SPL is expected to be amalgamated with SEIL shortly.

Shares of the company declined Rs 0.9, or 2.25%, to settle at Rs 39.10. The total volume of shares traded was 1,765 at the BSE (Tuesday).