ICRA

Press release

ELGi partners with nASSCOM FutureSkills prIME to build vital digital skills for the future of work

ELGi Equipments (BSE: 522074 NSE: ELGIEQUIP), one of India’s leading air-compressor manufacturers today, announced its partnership with NASSCOM’s FutureSkills Prime initiative. With this partnership, ELGi aims to equip every employee with a set of foundational digital skills that will enable them to operate in a digital environment, continually adapt to new ways of working, and add value beyond what can be done by automated systems and intelligent machines. FutureSkills Prime, a skilling programme focused on emerging technologies, is powered by a partnership between the Ministry of Electronics and Information Technology, the Government of India, NASSCOM, and the IT industry. Over one thousand ELGi employees are scheduled to undertake this program. Sharing his views on the collaboration, Dr Jairam Varadaraj, Managing Director of Elgi Equipments Limited, said, "Our purpose is to provide the best experience at each stakeholder touch-point. In our journey towards this purpose, we recognize that emerging digital technologies will be central pillars in providing such an experience. Be it customers or employees, or investors, digital can substantially and significantly enhance the experience. This has to be architected by our people and the starting point is to imagine the opportunities through the lens of digital technologies. To enable each employee in our organization to do this, it is imperative that they have a foundational knowledge of the various digital technologies. We’re committed to ensuring all of our employees are digitally proficient and conversant with digital technologies as we adapt to the future.” Kirti Seth, CEO, SSC NASSCOM, said “Now more than ever, the need for each citizen to get equipped with the skills of emerging technologies is of paramount importance to leverage the waves of opportunity rising up through this digital transformation we are going through. It is also important for each individual to talk the language of ‘digital’ and stay in tune with the world that is changing rapidly around us. FutureSkills Prime has a vision to make individuals from across sectors, and across job roles digitally fluent. We're proud that our voice has been recognized by industries across sectors. The fact that Elgi Equipments, a leading compressor manufacturing company is going to leverage FutureSkills Prime to build the digital quotient of their employees, is a strong signal of how this need cuts across all industries and domains. I wish Elgi’s employees an exciting learning journey to not just build on their technological foundations but unleash a fresh burst of creativity. This digitally ready workforce will be the key to not just exponential growth of their company but contribute to India’s dream of creating a trillion dollar digital economy.” FutureSkills Prime – a platform built by the government and the IT industry focuses on providing a solution to challenges when upskilling people with emerging technologies such as Artificial Intelligence, Cloud Computing, Cybersecurity, Big Data Analytics, Robotic Process Automation, and more. The registered candidates can develop core proficient skills, take aptitude diagnostics tests, acquire SSC NASSCOM certifications and scholarships, and become more digitally fluent. CM

Steel sector outlook revised to Positive as earnings surge expected to continue in FY2022 as well: ICRA

• Strong free cash flow generation has supported aggressive deleveraging by domestic steel mills • Likely reduction in domestic iron ore prices would help partly compensate for the input cost pressures arising out of the recent rally in coking coal prices • Domestic steel demand contracted by 1.2% sequentially in the seasonally weak peak-monsoon month of July 2021; ICRA expects a stronger uptick in the third quarter

ICRA Ratings has revised the steel sector’s outlook to Positive from Stable following all large listed steel companies reporting their best ever quarterly performance in Q1 FY2022, and the earnings outlook remaining healthy for the remaining months of FY2022. The rating agency, in its latest report, said that the positive sentiment around steel related commodities emanating out of China from Q2 FY2021 has helped the ongoing metals rally sustain over four quarters, largely cushioning the domestic large steel players from the impact of the pandemic. Given the strong earnings growth and capex curtailments following the pandemic related uncertainty, steelmakers started to aggressively deleverage since the second quarter of FY2021. This trend is reflected by the industry’s consolidated debt levels declining to Rs. 2.0 lakh crore in end-July 2021, from Rs. 2.6 lakh crore in end-July 2020, registering a sharp decline of over 21% in a short span of a year. The industry’s consolidated borrowings today are

at its lowest levels since March 2012. On taking a closer look at the industry’s consolidated borrowing per metric tonne of installed capacity, it stood at US$ 180/MT in July 2021, shrinking by almost half from US$ 350/MT prevailing in November 2008. This suggests that domestic steel companies are now significantly less leveraged than in FY2009, when the last steel super cycle ended, following the global financial crises. Elaborating on this, Mr. Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA, said, “After a 7% contraction in steel demand in last year following the pandemic, we expect domestic consumption to grow at around 12% in the current fiscal, not only benefitting from a low base, but also from an improving outlook for several steel consuming sectors. The steel production growth in FY2022 is likely to be higher at around 14%, getting traction from the increasing trend in net finished steel exports. Our assessment indicates that net exports is expected to increase to around 8 million tonne (mt) in the current year from 6 mt in FY2021, as domestic mills try to increase their export footprint, given the opportunity to fill-up the vacuum left by the Chinese mills due to the Government’s curbs”. On the supply front, from JSW Steel and NMDC, 8 mt of new capacities are expected to hit the market in the current year, but the same is likely to be absorbed by incremental steel consumption of 12 mt expected in FY2022, leading us to revise the industry’s capacity utilisation rates to 78% in FY2022 from 72% in FY2021. Within that, the leading mills however are expected to operate at a significantly higher capacity utilisation. On the raw material side, primary steelmakers are expected to witness some input cost pressures, with seaborne premium hard coking coal spot offers from Australia doubling in a short span of just three months, to US$ 238/MT in end-August 2021 from US$ 112/MT in mid-May 2021 amid tight supplies and a gradual recovery in steel demand outside of China. This is expected to increase the cost of steel production for domestic mills by around US$ 100/ MT, the effects of which would start to flow in the P&L of steel companies producing steel through the blast furnace route from September 2021. However, iron ore prices in Odisha have started to moderate in the last one month, taking a cue from the 28% correction in seaborne iron ore prices since July 2021, making ore exports less attractive. This, coupled with a return of the pre-pandemic level of domestic iron ore production in the current fiscal, has led to a correction in Odisha iron ore prices by around 20% since mid-July 2021. As per ICRA’s estimates, this is likely to bring-down the cost of steel production by around US$ 50-55/MT, partly compensating for the cost increases emanating from costlier coking coal purchases. However, this incremental benefit will only be available to the extent of market purchases by steel companies. “Domestic steel demand contracted by 1.2% sequentially in the seasonally weak peak-monsoon month of July 2021. Early trends suggest that demand remained soft in August as well, with steel price hikes announced at the beginning of the month being rolled back later. Therefore, earnings for primary producers are expected to moderate somewhat sequentially in Q2 FY2022. However, mills would have a better control on steel prices in the third quarter as demand picks up in the run-up to the festive season.” Mr. Roy added. Key downside risks to ICRA’s baseline scenario includes a severe third wave of Covid 19, leading to large-scale mobility restrictions, and a sustained slowdown in the automobile sector due to the semiconductor shortage. On the external environment, with the Chinese steel demand growth witnessing noticeable moderation from July 2021 due to the adverse impact of the Delta variant outbreak and severe floods, a slowdown in China’s domestic demand leading to a pick-up in exports by Chinese mills would also remain a downside risk. Regarding steel industry’s capex plans, despite the same increasing substantially in the current fiscal, ICRA believes that the industry would be able to generate strong free cash flows, helping it reduce its borrowing levels further in FY2022. Consequently, the industry’s total debt to OPBITDA is expected to decline from over two times in FY2021, to around one time in FY2022, a rare feat for a capital-intensive industry. On the business return indicators, the industry’s RoCEs climbed to mid-teens in FY2021, and in the current fiscal, it is likely to come close to 30%. Not surprisingly, therefore, steel mills from big to small have started announcing expansion plans as their balance sheets look much stronger following the aggressive deleveraging efforts over the last four quarters. India has not seen any new capacity addition in the last two years back-to-back, but things are poised to change going forward, as around 34 mt of new capacities are expected to come onstream by FY2026 from the leading players alone, adding close to a quarter of its existing installed capacities in the coming four to five years. Unless the current upcycle extends over several years, these large-scale expansion plans are however expected to lead to a sequential moderation in the industry’s credit metrics over the medium term as industry borrowing levels would go up to fund these growth plans, and steel prices moderate eventually, as is typically witnessed in cyclical sectors. CM