S&P Global Ratings said on Monday that continued strength in steel prices will support Tata Steel’s commitment to deleverage.
The company has guided for average prices to increase by about Rs 6,000 to 7,000 per tonne quarter-over-quarter in the three months ending June 2021. This about 10 per cent rise should push up EBITDA per tonne for India operations to about Rs 30,000 to 32,000 for the quarter.
S&P said sustained steel prices at these levels can lead to upward rating pressure. “In such a scenario, we will expect the company’s ratio of funds from operations to debt to move above our upgrade trigger of more than 25 per cent.”
However, Tata Steel is less likely to maintain the ratio above 25 per cent if steel prices normalise to midcycle levels such that EBITDA per tonne is about half the current estimate.
Tata Steel has reiterated its commitment to reduce its debt by at least one billion dollars a year even as it resumes growth capital expenditure (capex).
S&P said the company can outperform this target in fiscal 2022 (year ending March 31, 2022) based on current steel prices and capex plans.
Tata Steel has indicated total capex of Rs11,000 crore for fiscal 2022 of which Rs 7,500 crore will be for Indian operations.
The company has announced resumption of its five million tonnes a year expansion in Odisha on which there is residual capex of about two billion dollars. Benefits from the expansion will accrue in phases from fiscal 2024.
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