Tata Steel Shares In Focus After Fitch Upgrades Rating Of Steel Major To BBB

Tata Steel shares traded in the green on Tuesday after Global rating agency Fitch Ratings upgraded the issuer rating on the steel major to "BBB-" from "BB+", with a stable outlook on Monday. Tata Steel shares were spotted trading 0.61% higher at Rs 124.55 per share at 9:37 am IST today. The upgrade came after the company's standalone credit profile (SCP) was revised to 'bb+' from 'bb'.

The rating agency said that it has also upgraded the rating on the USD1 billion notes due July 2024 issued by TSL's subsidiary, ABJA Investment Co. Pte. Ltd., and guaranteed by TSL, to 'BBB-', from 'BB+'.

According to Fitch, the upgrade follows a revision in TSL's Standalone Credit Profile (SCP) to 'bb+', from 'bb', on the reduction in uncertainty and financial risk from its UK operations. TSL will replace its blast furnaces with more cost-efficient and environment-friendly electric arc furnace (EAF)-based steelmaking capacity. Tata Steel will replace its blast furnaces with more cost-efficient and environment-friendly electric arc furnace (EAF)-based steel-making capacity. Other than improving the profitability of its UK unit, its strong cost base in India will prove to be a major boost for the company. The company is expected to push its capex in the coming years.

Fitch Ratings said, "TSL's SCP also factors in the robust global cost position of its other assets, especially in India where it has significant raw-material sufficiency. We expect EBITDA leverage to decline over the next three years on higher capacity, output, and EBITDA. TSL aims to roughly double its capacity in India by 2030, but we think risks to its financial profile are mitigated by its focus on maintaining net debt/EBITDA, based on its calculations, of 2.0x or lower."

Fitch expects TSL's average annual capex over FY24-FY26 to be around 30% higher than the FY23 level of INR141 billion (FY22: INR105 billion). The company's 5mtpa capacity expansion at Kalinganagar is expected to be commissioned by early FY25.

TSL's EBITDA leverage likely to decline: The rating agency estimates TSL's EBITDA leverage to decline to 2.5x by FY26, and further thereafter, from 2.9x in FY24 and 2.8x in FY23.

Tata Steel shares have gained almost 20% in last one year.