Standard & Poor's Ratings Services has revised its outlook on Tata Steel to stable from negative.

The firm has affirmed its 'BB' long-term corporate credit rating on the Indian company, and has also assigned 'BB' long term issue rating to the proposed senior unsecured notes denominated in US dollar and euro to be issued by Singapore incorporated ABJA Investment, a 100 per cent subsidiary of Tata Steel, which is to guarantee the notes.

"Our outlook revision reflects our expectation that Tata Steel's operating performance will improve over the next three years,'' said Vishal Kulkarni, Standard & Poor's credit analyst.

He added: "We anticipate that the completion of the first phase of Tata Steel's Orissa greenfield project will generate positive free operating cash flow starting fiscal 2016 (year ending March 31, 2016). We therefore expect the company's financial metrics to improve with the ratio of funds from operations (FFO) to debt reaching 15 per cent in fiscal 2016, and rising further in fiscal 2017.''

Kulkarni added that a rise in steel output of 3.5 million tonnes to 4 million tonnes was expected over the next three years, from the current 8.5 million tonnes, from the company's high margin India operations, to boost operating performance.

"At the same time, we expect the company to gradually strengthen its operating performance in Europe with the improving economic environment in the UK and eurozone. We believe Tata Steel will moderate its growth strategy for the next two years to improve its financial position. The company does not plan to immediately start the second phase of the Orissa project after commissioning the first one,'' he added, in a statement.

Tata Steel also recently completed strategic measures such as the sale of a 50 per cent stake in Dhamra port and a parcel of land in suburban Mumbai. These transactions would improve the company's financial position after the negative impact of the rupee depreciation in the past 12 months, the agency noted.

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