Tata Steel is one of the country’s top steel producers with an installed capacity of 20.6 million tonne per annum (MTPA).
The rating agency said it “has changed the outlook on Tata Steel Ltd to stable from negative”.
India’s steel consumption declined by 55 per cent during the first quarter of fiscal 2020-21 following the nationwide lockdown to contain the COVID-19 pandemic, it added.
However, since the opening up of the economy in June 2020, pent-up demand from end-user industries, particularly from sectors like automotive, white goods manufacturing, construction and infrastructure have boosted steel consumption.
A benign 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, the agency said.
These conditions, Moody’s said, have propelled TSI’s record profitability in recent quarters. Its profitability has steadily improved to its 10-year high of Rs 18,948 EBITDA/tonne during the third quarter of FY21, from Rs 4,969 in the first quarter.
Moody’s forecasts a long-term sustainable EBITDA/tonne of Rs 13,200 for fiscal 2022 for TSI, constituting a 30 per cent gap compared to the December quarter. The company, therefore, has a substantial buffer especially given the benign operating environment.
Moreover, the company’s backward linkages with entire iron ore needs met from captive sources provide resilience to profitability even if steel prices were to severely fall.
For the company’s business in Europe, Moody’s said, shipments at Tata Steel’s European operations (TSE) will decline by about 10 per cent during fiscal 2021.
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, the agency noted.
Moody’s Vice President and Senior Credit Officer Kaustubh Chaubal said, “The rating affirmation and outlook change to stable are driven by a solid recovery in Tata Steel’s operations in the third quarter of the fiscal year ending March 2021. We believe the company will sustain the improvement over the next 12-18 months”.
The rating action also reflects the company’s proactive financial management amid the pandemic and its publicly stated target of reducing gross debt by at least USD 1 billion each year and prioritising deleveraging over capital expenditure, he added.