S&P revises Tata Steel outlook to stable on solid earnings rebound

Singapore, December 9 : S&P Global Ratings expects Tata Steel to sustain solid earnings over the next 12 to 18 months following a rebound in the second quarter of fiscal 2021, helped by a benign steel price environment and lower input costs.
A key factor driving improved near-term profitability for most steel producers is the sharp decline in coking coal prices. Prices are down around 30 per cent year-on-year and S&P expect them to remain soft at least for the next two quarters.
"At the same time, we estimate domestic steel prices for Tata Steel's Indian operations will be higher in the second half of fiscal 2021 with a price increase of about Rs 3,000 per tonne already implemented in October 2020."
S&P said weakness at the European operations has also been lower than previously expected, thanks to the company's earlier cost reduction initiatives as well as sizable government wage support (about 100 million pounds received in the first half of 2020).
As of September 30, Tata Steel had Rs 17,800 crore of cash and cash equivalent. In comparison, debt maturities over the next year were only about Rs 1,800 crore apart from about Rs 13,000 crore of short-term debt.
"We also view the company's sound relationships with banks and its high standing in capital markets as supportive of its liquidity position," said S&P.
"The stable outlook reflects our expectation that Tata Steel's earnings will strengthen over the next 18 months such that its key financial metrics will improve to levels appropriate for the current rating. The stable outlook also assumes no major growth projects or asset divestments over the period."
Tata Steel is one of the largest steel producers globally with an annual crude steel capacity of close to 30 million tonnes--about 18 million tonnes in India and 10.5 million tonnes in Europe.