In a recent development, John Cockerill India Limited (JCIL) announced a downgrade in its credit rating by CARE Ratings Limited. The company’s long-term/short-term bank facilities rating has been revised to CARE BBB; Stable and CARE A3+, from the earlier ratings of CARE BBB+ and CARE A2.

The downgrade follows the company's deterioration in operational performance in calendar year 2024 (CY24), driven largely by the muted demand for its products and services, particularly from the steel industry. The steel industry is currently facing significant challenges, including declining realizations amid an oversupply and continued uncertainty about recovery in the industry outlook. As a result, John Cockerill India has witnessed a substantial drop in revenue, reporting ₹389.19 crore in CY24, compared to ₹666.25 crore in the first nine months of FY23.

Key Factors Impacting the Downgrade

1. Weak Steel Industry Demand: The steel industry’s slowdown has been a key factor in the decline of order book execution and has led to deferred capital expenditures (capex) from integrated steel companies. These delays, combined with cheap imports, have contributed to lower sales realizations and a weakening of business prospects for John Cockerill India.

2. Financial Risk Profile Decline: The company’s financial risk profile has also significantly deteriorated due to rising costs for new product development and the ongoing challenges in the global steel industry. This has resulted in a decline in profit margins, as fixed costs became harder to absorb due to lower revenues.

3. Decline in Profitability: The PBILDT margin has been adversely affected by the ongoing issues in the steel industry, with JCIL finding it difficult to maintain profitability levels due to competitive pressures and cost absorption challenges.

Rating Strengths and Outlook

Despite the downgrades, CARE Ratings continues to acknowledge the company’s established track record in industrial construction and its global presence. The geographical diversification of operations, coupled with strong parentage, provides a certain level of comfort. Additionally, the company’s order book position remains robust, providing medium-term revenue visibility.

However, key risks remain due to the fixed-price nature of contracts, which exposes the company to the rising input costs. Other risks include low profitability margins, customer concentration, and the cyclical nature of the steel industry, which is directly linked to the capex cycle of steel companies.

Future Outlook and Key Monitoring Factors

CARE Ratings notes that improvement in demand for steel products and increasing capex from integrated steel companies remain critical for a potential rating upgrade. John Cockerill India will need to navigate the ongoing challenges and achieve a recovery in its operational performance to restore its financial stability.

This credit rating revision highlights the importance of closely monitoring the steel industry’s recovery and the company’s ability to maintain strong order execution amidst challenging economic conditions.

John Cockerill India has reaffirmed its commitment to overcoming these challenges by leveraging its strengths in the global industrial market, while closely watching the industry’s recovery trends for better financial health moving forward.

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