Fitch Downgrades Tata Steel Outlook To Negative From Stable

(The Corner Office Journal) -- Fitch Ratings downgraded the outlook on Tata Steel Ltd.’s issuer default rating (IDR) to Negative from Stable, citing uncertainty over the turnaround of its UK operations.

The Negative outlook reflects uncertainty surrounding turnaround of the Indian steelmaker’s UK operations and risks to the rating agency’s forecast that Tata Steel’s EBITDA leverage may improve to below 3x by the financial year ending March 2025 (FY25), Fitch said in a statement.

The rating agency also said the change in the UK government and labor union's actions to save job losses at the company’s UK operations may delay its plan to reduce losses through FY25.

Fitch, however, affirmed Tata Steel’s IDR at BBB-. It also affirmed the rating on the $1 billion notes due July 2024 issued by the company’s subsidiary ABJA Investment Co. Pte. Ltd. and guaranteed by Tata Steel, at BBB-.

The rating agency said it expects robust growth in the company’s Indian operations and likely EBITDA profits at Dutch operations in FY25 may offset any losses at UK operations.

KEY RATING DRIVERS

FY25 EBITDA likely to rise by around 50% to around 311 billion rupees ($3.70 billion), driven by Indian volume growth and higher profitability at the Netherlands operations.

EBITDA Leverage likely to improve to 2.9x by FY25 from 4x in FY24.

Debt is expected to rise on negative free cash flow, based on the group's investments in capital expenditure (capex) for capacity expansion in India and business-restructuring costs in the UK over the next two years.

Capex is likely to be largely flat in FY25 versus 182 billion rupees in FY24, before rising to 200 billion rupees in FY26. Fitch assumes 35 billion rupees for restructuring-related costs in the UK.

Sales volumes are likely to grow by 5% and 8% in FY25 and FY26, respectively, following a 2% rise in FY24.

Volume growth in FY25-FY26 will be driven mainly by the completion of commissioning of the 5 million tons per annum capacity expansion at Kalinganagar by the second half of FY25.

Sales volumes in Europe are expected to be flat in FY25-FY26.



Note: $1 = 83.5240 Indian rupees

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