Backward integration, captive power seen aiding profitability of secondary steel

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The Economic Times daily newspaper is available online now. Read Today's Paper Backward integration, captive power seen aiding profitability of secondary steel playersBy Nikita Periwal, ET BureauLast Updated: Oct 06, 2026, 04:52:00 PM ISTSynopsis

Secondary steelmakers in India are improving profitability by investing in captive power and backward integration, helping offset volatile raw material and energy costs, according to CRISIL. Operating margins are expected to rise to 6.6% this fiscal, with integrated players earning Rs 1,500-2,000 more EBITDA per tonne than non-integrated peers.

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Loading...×MUMBAI - Usage of captive power and a focus on backward integration is helping secondary steel players improve profitability, overriding the impact of volatility in raw material and energy costs, said CRISIL. It sees operating margins of these companies improving by 50 basis points year-on-year to 6.6% in the current fiscal.

Healthy demand for steel along with stronger prices of the alloy and discipline in utilising capital will also support margins, the rating agency said on Tuesday.

India is the world’s second-largest producer of steel, and secondary steel producers account for over 40% of the total steel produced in the country. These companies use steel scrap or direct reduced iron for the production of steel, as opposed to iron ore and coking coal used by primary steel players.

“Increasingly, backward integration is emerging as the defining differentiator for profitability and credit resilience,” CRISIL said in a report. “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.”

Geopolitical uncertainties and the consequent disruptions in supply chains could keep prices of coal volatile, which in turn, can raise the cost of production for steel-makers by Rs 2,000 a tonne, the agency said. “This is precisely why investments that reduce dependence on external inputs are becoming increasingly important”.

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Companies are prioritising investments for cost competitiveness measures such as captive power and backward integration rather than adding capacity, and these can help deliver sustainable cost benefits.

“Combined with higher steel realisations, these initiatives should help maintain industry Ebitda (earnings before interest, tax, depreciation and amortization) at ~Rs 3,200 per tonne, comfortably above the long-term average of ~Rs 2,900 per tonne,” CRISIL said.

India is the world’s fastest-growing major steel market, primarily on account of the sustained government-led spending on urban infrastructure, roads, railways and affordable housing.

Companies which are integrated are already generating an incremental EBITDA of Rs 1,500 – 2,000 per tonne as compared to their non-integrated peers. More secondary steel players are now focusing on becoming integrated, with their share expected to rise to 33% this fiscal from 27% a year ago.

Players in eastern India, which houses a key chunk of secondary steel players, have been more proactive in these cost competitive measures, CRISIL said, after they experienced a sharp rise in power tariffs in recent years.
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