Concern, too, has been aired with regard to Sail's ability to achieve success in its restructuring exercise, undertaken to improve cash flows, both in the immediate future as well as in the long-run.

"The downgrades reflect the continued deterioration in the business and financial risk profile of Sail, which is reflected in the increased pressures on volumes and realisation, and increased costs, unfavourable capital structure and stretched liquidity," Crisil said in its press release issued here today adding, "the revision in rating also reflects Crisil's concerns on the ability of the company to generate sufficient cashaccruals on account of poor demand conditions and competition."

The Crisil release further said that while the government had taken initiatives fixing floor prices, increased import duties on finished products, reduced tariffs on key raw materials like coke, the positive impact of these on Sail's cash flows will get overshadowed by its inherent high-cost structure, adverse demand-supply dynamics in the domestic market and excessively high financial charges in view of the company's high leverage.

Crisil cited Sail's cost structure, especially high employee-related costs, stating that this would continue to remain one of the key rating sensitivities. This is also seen offsetting benefits on account of improved techno-economic parameters. Crisil pointed out that given Sail's strained cash flows, the ability to access debt would turn critical for making timely repayments on outstanding obligations.

On Sail's restructuring, Crisil was of the view that given the company's cash flows and debt profile,successful and immediate conceptualising as also prompt implementation of the restructuring plans, cost-reduction measures along with resolution of outstanding issues related to the loss making subsidiaries is extremely critical with regard to the outlook on the outstanding ratings.

Sail's restructuring pertains to hiving off its power units, sale and lease back of certain large depreciable items and financial restructuring. Sail also intends to take a decision on its loss-making subsidiary, IISCO and financing via the steel development fund.