Are India’s secondary steel companies on track to become profitable this fiscal year?

India's secondary steel industry is set for a modest profitability recovery this fiscal, driven less by favourable pricing and more by a structural shift towards backward integration and captive power generation.

These investments are helping producers counter persistent inflation in raw material and energy costs, while healthy domestic demand, firmer steel realisations and disciplined capital spending provide additional support.
Our analysis of 130 secondary steel makers we rate, accounting for 30% of sector revenue, reflects this strategic shift. As a result, operating margins are expected to improve by nearly 50 basis points (bps) to 6.6% this fiscal from 6.1% last fiscal, says Crisil Ratings.

Increasingly, backward integration is emerging as the defining differentiator for profitability and credit resilience. With volatility in input costs continuing to shape industry economics, producers are prioritising control over raw materials, power and operating efficiencies rather than pursuing aggressive capacity expansion.

"With limited greenfield capacity additions this fiscal, investment priorities have shifted towards improving cost competitiveness. Most of the planned capex of ₹3,000-3,500 crore will be for captive power and backward integration that can deliver sustainable cost benefits. Combined with higher steel realisations, these initiatives should help maintain industry EBITDA at ₹3,200 per tonne, comfortably above the long-term average of ₹2,900 per tonne," says Rahul Guha, Senior Director, Crisil Ratings.

Demand remains supportive

Government spending on roads, railways, urban infrastructure and affordable housing continues to underpin consumption of long steel products, while private-sector capex is showing early signs of revival across engineering, manufacturing and industrial segments. Consequently, domestic long steel demand is expected to grow around 7% this fiscal.

A stronger demand backdrop, coupled with a more balanced supply environment, should also support steel prices. Average realisations are expected to rise around 6% to ₹50,000-51,000 per tonne this fiscal from approximately ₹ 48,300 per tonne last fiscal.

Yet cost pressures remain significant. Prices of coal and iron ore, the industry's two most critical inputs, are expected to increase 5-7% this fiscal amid sustained demand from end-use sectors. At the same time, geopolitical uncertainties and disruptions to global commodity supply chains could keep coal prices volatile.

As a result, production costs for secondary steel producers are expected to rise by nearly ₹2,000 per tonne during the year. This is precisely why investments that reduce dependence on external inputs are becoming increasingly important.

Payoff from integration

Producers with captive power facilities and deeper backward integration typically generate an incremental EBITDA of ₹1,500-2,000 per tonne compared with non-integrated peers. Consequently, the share of integrated capacity in the secondary steel sector is expected to rise to nearly 33% this fiscal year from 27% in fiscal 2026 as more companies seek to strengthen their competitive position.

The trend is particularly pronounced in eastern India, which accounts for more than half of the country's secondary steel production and has experienced steep increases in industrial power tariffs in recent years.

Captive power facilities not only lower energy costs but also improve operating reliability and reduce vulnerability to grid-related disruptions, strengthening competitiveness on multiple fronts. Improving operating performance is also expected to translate into healthier cash generation.

More than 60% of the sector's planned capital expenditure is likely to be funded through internal accruals, reflecting robust cash flows and limiting reliance on external borrowing.

"Higher profitability and healthy cash accruals should provide sufficient flexibility to fund ongoing investments while preserving comfortable credit metrics. Debt-to-EBITDA is expected to improve to around 3.4-3.5 times this fiscal from approximately 3.65 times over the past two fiscals. Gearing should remain below 1 time, while interest coverage is expected to strengthen to nearly 3.3 times," says Argha Chanda, Director, Crisil Ratings.

Risks remain

A sharper-than-expected decline in steel prices, weaker infrastructure spending, volatility in raw material costs or delays in commissioning integration projects could weigh performance. Nevertheless, with demand remaining resilient and operational efficiencies steadily improving, secondary steel producers appear better equipped than in previous cycles to absorb commodity-price shocks and maintain stable credit profiles.