Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Stock Report

| More

Tata Steel rating raised to 'BB-' on deleveraging and strong operating momentum, Outlook Stable

Posted On: 2021-04-06 05:15:01 (Time Zone: Arizona, USA)

Rating Action Overview

- We believe Tata Steel Ltd.'s debt levels will decline materially over the next two years due to strong cash flow and the company's stated intention to reduce debt.

- In our base case, we expect Tata Steel's adjusted debt to decline by about 30% by March 2023 from the March 2020 level of about Indian rupee (INR) 1 trillion, leading its credit metrics to steadily improve.

- On April 6, 2021, S&P Global Ratings raised its issuer credit rating on Tata Steel and its subsidiary ABJA Investment Co. Pte. Ltd. to 'BB-' from 'B+'. We also raised the long-term issue rating on the senior unsecured notes issued by ABJA.

- The stable outlook reflects our expectation that Tata Steel will adequately deleverage over the next two years and build comfortable headroom at the current rating level.

The benefits of strong cash flows and management's commitment to lower debt should help Tata Steel to materially deleverage over the next two years. We estimate our adjusted debt levels for Tata Steel will decline by about 30% by March 2023 from about INR1.1 trillion in March 2020. About half of this decline is expected to have been delivered in fiscal 2021 (year ended March 2021). Tata Steel has committed to reducing absolute debt levels by at least US$1 billion per year from fiscal 2022. Our base case shows that the company's free operating cash flows will be adequate to facilitate this reduction over the next two years, even with our revised capital expenditure (capex) estimates of about INR90 billion per year, up from INR50 billion-INR60 billion in fiscal 2021. We believe Tata Steel will moderate its investment plans, if required, so as to meet this objective. The company reported sizable debt reduction in fiscal 2021, thanks to stronger cash flow generation, recent equity raising of about INR33 billion, and working capital improvements of about INR120 billion. However, we treat as debt substitution some of Tata Steel's working capital-related debt reductions in fiscal 2021, such as INR60 billion in export advances and securitization of receivables at Tata Steel Europe (with a facility size of 475 million). This implies a comparatively lower level of deleveraging compared with the company's reported numbers.

We expect strong operating momentum over the next 12-18 months to facilitate debt reduction. Tata Steel has guided to price increases of INR6,000-INR7,000 per ton in the fourth quarter of fiscal 2021, on the back of already high prices and margins in the third quarter. In the third quarter, the Indian operations reported average EBITDA/ton of about INR19,000, exceeding our mid-cycle estimate of about INR13,500-INR14,000. Consequently, we anticipate that the company can maintain strong operating momentum over the next couple of quarters at least. Our base case assumes moderation in steel prices over fiscals 2022 and 2023, such that the Indian operations' EBITDA/ton gradually will decline to about INR16,000 by fiscal 2023. In our view, steel prices could moderate over the next two to three years as output ramps up globally following disruptions due to COVID-19. Long product prices in India have already moderated following the resumption of smaller capacities. Under these assumptions, we estimate Tata Steel can generate aggregate EBITDA of more than INR600 billion and free operating cash flow of about INR150 billion over fiscals 2022 and 2023.

Volatility in earnings, and hence, credit metrics constrains a higher rating for now. We estimate Tata Steel's debt-to-EBITDA ratio will decline to 2.5x-3.0x in our base case by fiscal 2023 and the ratio of funds from operations (FFO) to debt should improve to 20%-25%, compared with our earlier estimates of 4.0x-4.5x and about 15%, respectively. A key risk to these estimates is the level of steel prices. If steel prices were to drop to mid-cycle levels by fiscal 2023, we estimate the company's FFO-to-debt ratio to be 15%-17%, and it has the potential to drop further to 13%-14% at the bottom of the cycle. We note the company's EBITDA in fiscal 2020 was about half our current estimates for fiscals 2021 and 2022, with a ratio of FFO-to-debt being 6%, indicating the extent of volatility seen lately. That said, material deleveraging has lowered downside rating risk, in our view. The likelihood is reducing that credit metrics will weaken to levels seen in previous downturns.

Shares of TATA STEEL LTD. was last trading in BSE at Rs.862.85 as compared to the previous close of Rs. 867.4. The total number of shares traded during the day was 913689 in over 12422 trades.

The stock hit an intraday high of Rs. 882.3 and intraday low of 858.15. The net turnover during the day was Rs. 794154985.

Source: Equity Bulls

Click here to send ur comments or to

Other Headlines:

TCS Named a Leader in the 2021 Gartner Magic Quadrant for Managed Workplace Services, Asia Pacific

Shri Bajrang Alliance Limited's Agro Division now certified under Food Safety Management System

5Paisa Capital Ltd Q4FY21 consolidated net profit surges to Rs. 5.85 crore

Accelya Solutions India Ltd board to consider Q3FY21 results on April 30, 2021

Van Heusen launches new sub-brand 'Denim Labs'

Shriram City Union Finance Ltd board to approve final dividend, FY21 results on April 30, 2021

Larsen & Toubro Infotech Ltd board to conider Q4, FY21 results, dividend on May 4, 2021

Cipla Ltd board to consider Q4, FY21 results, dividend on May 14, 2021

Tata Steel Long Products Ltd Board approves dividend of Rs. 5

Swaraj Engines Limited announces Q4FY21 results

AstraZeneca Pharma India Limited launches Fasenra™

Hero MotoCorp to undertake temporary suspension of manufacturing operations as precautionary measure

Salasar Techno Engineering Ltd receives orders worth Rs. 47.70 crore

Supreme Petrochem Ltd Board to consider FY21 results & Dividend on April 30, 2021

IRDAI imposes penalty of Rs. 25 lacs on SBI General Insurance Company Limited

Tata Steel Long Products Ltd Q4FY21 consolidated PAT soars to Rs. 339.86 crore

Network18 Media & Investments Ltd reports Rs. 39.13 crore consolidated PAT in Q4FY21

Quick Heal Technologies Ltd fixes May 3, 2021 as record date for Buy Back

TV18 Broadcast Ltd reports Q4FY21 consolidated PAT of Rs. 165.88 crore

Swaraj Engines Ltd Board approves dividend of Rs. 50, special dividend of Rs. 19

Blue Dart Express Ltd board to consider Q4, FY21 results, dividend on May 5, 2021

Swaraj Engines Ltd Q4FY21 PAT surges to Rs. 32.56 crore

Narendra Investments Delhi Ltd Q4FY21 PAT up at Rs. 0.35 crore

Nestle India Ltd reports jump in net profit to Rs. 602.25 crore in Q1CY21

Central Bank of India board approves issue of shares at Rs. 17.11

Saregama strikes a long term music deal with Sanjay Leela Bhansali

Nestle India Ltd board declares interim dividend of Rs. 25 for CY2021

TCI Industries Limited approves issue of 107602 NCRPS

Alembic Pharmaceuticals Ltd board to consider Q4, FY21 results on March 31, 2021

GatewayRail's inaugural 'Maersk Automotive Express Service' flagged off by Denmark's Ambassador to India

Renowned author Gurcharan Das unveils Emkay Investment Manager's book on 'E-Qual' framework

HCG Cancer Hospital Bengaluru successfully operates on a patient with 'Congenital Hemophilia'

Suprajit Engineering initiates a nation-wide campaign against Counterfeit Products

Adani Enterprises Ltd forms Mundra Petrochem Ltd

Morganite Crucible (India) Limited board to recommend dividend, approve Q4, FY21 results on May 18, 2021

Dhanlaxmi Bank Limited shifts corporate office

Hindustan Zinc Ltd board to consider Q4, FY21 results on April 27, 2021

Yes Bank Ltd board to consider FY21 results on April 30, 2021

Ramco Global Payroll Now Available on Oracle Cloud Marketplace

TCS ADD Safety Wins Award for Using AI to Re-Imagine Pharmacovigilance

LTI Recognized Among the Top Performers in Nordic Region

Rashmika Mandanna Just Can't Get Enough of the new McSpicy Fried Chicken in the latest campaign launched by McDonald's

Mr. Satyam Bansal to be engaged as an Advisor for Deccan Health Care Limited

Sterlite Technologies Ltd board to recommend final dividend, consider FY21 results on April 29, 2021

Shree Digvijay Cement Company Ltd Board to consider Dividend for FY21

Hero MotoCorp adopts Aravali Biodiversity Park in Gurugram

IIFL Wealth Management Ltd board to consider Q4, FY21 results on May 18, 2021

Automotive Stampings and Assemblies Ltd board to approve Q4FY21, FY2021 results on April 26, 2021

Anmol India Ltd board to consider allotment of 10 lakh shares on April 23, 2021

CRISIL Limited announces Unaudited financial results for the first quarter ended March 31, 2021

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020