Ind-Ra upgrades Tata Steel's long-term issuer rating to 'AA+' from 'AA'

India Ratings and Research (Ind-Ra) on Wednesday said it has upgraded Tata Steel's long-term issuer rating to 'AA+' from 'AA'.

AA-rated instruments are considered to have a high degree of safety regarding timely servicing of financial obligations.

In a statement, the ratings agency said the upgrade reflects its expectation that despite likely aggregate capital expenditure of about Rs 22,000 crore, Tata Steel's consolidated adjusted net leverage would improve as significant cash flow generation would lead to reduction in its consolidated gross debt.

"Ind-Ra has upgraded Tata Steel Limited's Long-Term Issuer Rating to 'IND AA+' from 'IND AA'. The Outlook is Stable," the statement said.

Ind-Ra said it continues to take a consolidated view of Tata Steel Ltd (TSL) and its 161 subsidiaries to arrive at the ratings owing to the strong operational and strategic linkages among them.

Sharing its outlook for the steel sector, Ind-Ra said domestic consumption growth is expected to continue in financial year 2021-22, underpinned by demand growth from construction, real estate, automobiles and consumer durables segments, and high government spending on infrastructure.

Similarly, the export opportunities are likely to remain strong, backed by China's removal of export rebate amid the capacity moderation to address environmental concerns.

TSL's standalone export sales were close to 15 per cent of the overall sales in first half of FY22.

However, the agency expects normalisation of metal prices and moderation in per tonne margins during second half of FY22 due to weak international prices, raw material cost deflation and improved domestic demand-supply dynamics.

"The agency estimates TSL's average EBITDA/tonne to for the India operations to rise to Rs 25,000-Rs 26,000 in FY22 (compared to Rs 17,700 in FY21) and subsequently normalise to Rs 14,000 in FY23," the statement said.

India-headquartered Tata Steel is among the top steel making companies in the world.