Tata Steel rose 2.13% to Rs 1,215.10 after CARE Ratings upgraded the steel company’s long-term credit rating to “CARE AA +; Stable ‘de’ CARE AA; Negative’.
The rating agency said the revised rating and outlook assigned to Tata Steel’s (TSL) instruments takes into account the performance improvement seen in FY21, sequentially from the second quarter and fiscal year 21, in particular in Indian operations, thanks to the recovery in demand and the increase in steel prices leading to significant cash flow generation and significant deleveraging at the end of FY21 resulting in improvement of debt coverage indicators.
TSL’s European operations also, while recording operating losses for the full FY21, saw improved profitability (from loss to profit) in Q4-FY21, largely thanks to steel prices significantly more than offset the sharp increase in iron ore prices.
Given the current price trend in Europe, European operations are also expected to report operating profit in the near future. However, the risk arising from the downside risk in the event of an unfavorable development in the prices of steel and raw materials for European operations persists.
The rating continues to reflect TSL’s established track record as one of India’s largest integrated steelmaking companies with an enriching product portfolio, significant captive raw material security and a global presence aided by geographically diverse production facilities.
In addition, TSL also enjoys immense financial flexibility due to its membership in the Tata group of companies.
The strengths of the above rating are however moderated by the company’s presence in a highly cyclical steel industry and its exposure to currency risk.
Tata Steel is present across the entire value chain from steelmaking, from the mining and processing of iron ore and coal to the production and distribution of finished products.
On a consolidated basis, the steel company reported a net profit of Rs 6,644.15 crore in Q4 FY21 compared to a net loss of Rs 1,481.34 crore in Q4 FY20. Net sales in the quarter increased 39.4% year-on-year (YoY) to Rs 48,950.89 crore.
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