Moody’s Investors Service has revised the outlook on Tata Steel to stable from negative while affirming Ba2 corporate family rating.
“The rating affirmation and outlook change to stable are driven by a solid recovery in Tata Steel’s operations in Decrmber quarter. We believe the company will sustain the improvement over the next 12-18 months,” said Kaustubh Chaubal, a Moody’s Vice President and Senior Credit Officer.
“The rating action also reflects the company’s proactive financial management amid the pandemic,” he said.
Steel consumption declined by 55 per cent in June quarter following a nationwide lockdown due to Covid pandemic.
However, since the opening up of the economy in June, steel consumption improved restricting the decline to only about 11 per cent.
Moody’s estimates shipments for Tata Steel Indian operations in this fiscal will stay largely flat.
Abenign industry environment, supportive government policies in the form of large infrastructure investments and markedly better prospects in the automotive industry have supported steel prices in India.
Tata Steel India’s profitability has steadilyimproved to its 10-year high of ₹18,948 EBITDA/tonne in December quarter against ₹4,969 in June quarter.
In contrast, Moody’s estimates shipments at Tata Steel’s European operations will decline by about 10 per cent in this fiscal and recover gradually. Europe’s economic activity was affected by further lockdowns and a seasonally weak winter quarter, although it has improved since the early months of the pandemic.
Moody’s estimates TSE generated an EBITDA/tonne of Rs 2,370 in December quarter against consistent losses in the preceding three quarters. The rating agency remains cautious in its TSE and expects to just about break even in FY’22.
The company’s consolidated gross debt would reduce by at least $2.7 billion from a year prior on the back of it equity raising of $480 million. It made a final call in February on its partly paid equity shares will help to reduce debt.
The revised rating takes into account the weak performing TSE that will remain a drag for a while onconsolidated metrics.