Tata Steel Ltd.'s strong credit profile due to its "solid" market position in India has made Moody's Investors Service raise the company's long-term rating to Baa3 from Ba1.
Moody's revised Tata Steel's outlook to 'stable' as it expects an improvement in the company's profits and debt reduction efforts.
"We expect the company's profitability to increase even as softer steel prices dent revenues," Kaustubh Chaubal, senior vice president at Moody's, said in a release on Monday.
The ratings agency said Tata Steel would likely maintain conservative financial policies and a well-balanced capital allocation, with financial metrics appropriate for its 'Baa3' rating.
Moody's sees Tata Steel benefitting from its $2.3 billion liquidity as of June 30 and the $2.25 billion in undrawn term loans and working capital credit lines in India and Europe.
These liquidity sources, along with cash flow from operations, will be sufficient to fund the company's capital spending, working capital needs, scheduled debt maturities, and dividend payments till September 2024, according to Moody's.
It also said Tata Steel's longstanding relationships with Indian and multinational banks provide it with adequate flexibility to navigate any short-term risks.
Moody's On Tata Steel
Assigns 'Baa3' long-term issuer rating.
Withdraws company's 'Ba1' corporate family rating.
Changes outlook to 'stable' from 'positive'.
Rating reflects the company's large-scale, globally cost-competitive, vertically integrated steel operations in India.
Sees sustained improvement in its European operations following the expected closure of loss-making upstream operations in the U.K.
Indian operations accounted for over 80% of its consolidated Ebitda in fiscal 2023, a result of its backward integration into the mining of iron ore and metallurgical coal.
Large infrastructure investments and consumption from the auto sector will drive steel demand to grow by 7% per year till 2030, improving Tata Steel's credit profile.
Earlier this month, Tata Steel agreed to work with the UK government to overhaul the Port Talbot steel plant at a cost of £1.25 billion, with the UK government providing a capital grant of £500 million. Moody's expects this move to help Tata Steel trim costs and reduce earnings volatility.
The firm said that Tata Steel's strengthening credit metrics can be sustained even while it invests in building new capacity in India and
Europe.
Shares of Tata Steel Ltd. closed 0.51% higher at Rs 127.40 apiece compared to a flat benchmark NSE Nifty 50.
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