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S&P Global Ratings has raised rating on Tata Steel and its subsidiary ABJA Investment to ‘BBB-’ from ‘BB’ on expectation that the company will continue deleveraging to improve its resilience to downturns over the next 12-18 months. The outlook also reflects continued favourable financial policies, especially towards leveraging.
The rating is supported by strong deleveraging intent and continued robustness in steel prices. The adjusted debt estimate for Tata Steel will fall to about ₹60,000 crore by fiscal 2023 (ending March 31, 2023) from about ₹91,500 crore as of last fiscal, it said.
This will significantly outperform the company’s stated intention to reduce debt by at least $1 billion per year. While the company has resumed growth in capital expenditure, the increase is small in relation with operating cash flow and does not affect the path of deleveraging. The company’s EBITDA and operating cash flow to be about ₹1-lakh crore and ₹35,000-40,000 crore over FY22 and FY23 respectively. This is despite the assumption of a 10 per cent decline in steel prices in FY23.
Key risk
A recent spike in coking coal prices is a risk to the near-term profitability for Tata Steel.
“We believe the spike in coking coal prices could reduce annual EBITDA by ₹18,000 crore-₹22,500 crore,” said the rating agency. However, high input prices will support steel prices against expectation of a gradual normalisation in steel prices through FY23.
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