Daily Brief Credit: JSW Steel – Tear Sheet – Lucror Analytics and more

We view JSW Steel as “Low Risk” on the LARA scale. The company has demonstrated a strong and resilient track record throughout the cycle. JSW’s large and growing scale, with increasing vertical integration, partly offsets the industry’s cyclicality as well as JSW’s aggressive expansion plan and acquisitions. The group has weathered the challenging operating environment well, despite a sharp slowdown in the Indian economy in 2019 and the COVID-19 pandemic. Furthermore, the company’s improving vertical integration (in terms of captive iron ore and coal supplies) has reduced exposure to supply and price volatility for raw materials. We note positively the Indian government’s continued willingness to support the domestic steel market, which has partly offset cheap exports from steel-surplus countries (e.g. China, Russia, South Korea and Japan). We also view favourably JSW’s position as the largest player in the Indian market, with a low cost base. The company has managed to turn around Bhushan Power & Steel, which had been acquired in bankruptcy court proceedings.

Our fundamental Credit Bias is “Negative”, due to the sharp deterioration in the operating environment. This was in turn driven by high coking coal prices and increased energy costs.

Controversies are “Immaterial”. While JSW has faced some issues (e.g. villagers’ protests against plants or controversial land sales by local governments to the company), such events are immaterial and quite common in India. The ESG Impact on Credit is “Neutral”. The metals & mining industry is exposed to regulatory and geopolitical risks, and the nature of the extraction process places JSW under scrutiny from environmental agencies and investors. However, the company has managed these well, considering the significant ESG efforts it has made.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

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