Moody's changes outlook on Tata Steel to stable from negative
Apr 01, 2021
Singapore, Apr 1 : Moody's Investors Service has changed the outlook on Tata Steel Ltd to stable from negative.
At the same time, Moody's has affirmed the company's Ba2 corporate family rating (CFR).
"The rating affirmation and outlook change to stable are driven by a solid recovery in Tata Steel's operations in the third quarter of fiscal year ending March 2021," said Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer.
"We believe the company will sustain the improvement over the next 12 to 18 months, enabling its consolidated financial metrics to recover to levels more appropriate for its Ba2 CFR," he said.
"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 one billion dollars each year and prioritising deleveraging over capital expenditure," said Chaubal.
India's steel consumption declined by 55 per cent during the first quarter of fiscal 2021 (Q1 fiscal 2021) following a nationwide lockdown during the Covid pandemic.
However, since the opening up of the economy in June 2020, pent-up demand from end-user industries -- in particular automotive, white goods manufacturing, construction and infrastructure -- have boosted steel consumption, containing the annual steel consumption decline to only about 11 per cent.
Moody's estimates shipments for Tata Steel Indian operations during fiscal 2021 will stay largely flat. 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.
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.
In contrast, Moody's estimates shipments at Tata Steel's European operations will decline by about 10 per cent during fiscal 2021 and for profitability to gradually recover.
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.
