The operating margins of large steel manufacturers like Tata Steel, JSW Steel and SAIL are likely to take a hit in FY21. This is evident from early signals emanating from the sector. Rating agency CRISIL has projected that the OPMs of steel companies may take a 200 bps hit down to 15% on account of weaker top line sales volume and tepid realizations.

There could be some respite for steel companies from lower raw material prices. Steel companies are heavy betting on a revival in demand in the second half of FY21 due to pent-up demand and aggressive government spending on construction and infrastructure. Credit profiles are unlikely to be impacted as capital investments have been mostly put off.