Tata Steel's FY15 results below expectation, no rating impact: Moody's

But no impact on rating

Global rating agency Moody’s on Wednesday said Tata Steel  results for the year ended March 2015 were below expectation. However, these can be accommodated within its Ba1 corporate family rating, with a stable outlook.

“Tata Steel’s FY2015 results were affected mainly by disruptions in iron ore supply in India, the effects of which we expect will fade away over FY2016,” says Kaustubh Chaubal, a Moody’s vice-president and senior analyst.

Moody’s said the pressure on steel realisations and cost increases for Tata Steel India’s operations led to a sharp 24 per cent year-over-year decline in Ebitda in FY2015 to Rs 10,100 crore. This pushed Tata Steel’s leverage to 6.8 times, breaching the downward rating trigger.

Nevertheless, Moody’s expected the company’s leverage to correct over the next few quarters on account of a slew of steps. First, Tata Steel uses its stock of imported iron ore and has started mining its own iron ore for Tata Steel India. Second, new shipments from the Kalinganagar plant have added to its Ebitda; and the European operations have showed sustained and better performance.

Specifically, Tata Steel India’s Ebitda per tonne should bounce back to around $200 a tonne in FY2016, from $186 in FY2015.

Meanwhile, it said, Tata Steel UK Holdings  results were stronger than expected owing to growth in the delivery of specialised products.  Sales of new products surged 16 per cent by volume and the company raised new products in its portfolio to 113 by the end of FY2015, Moody’s said.

The positive outlook captures the potential upside to UK Unit’s operating and financial profile from an orderly sale of the long products business.

Tata Steel’s Southeast Asian operations were affected by weak demand and a contraction in the rebar-scrap spread on the back of a significant increase in imports from China.

Although Moody’s expects Southeast Asian demand to remain steady, the revenue and contribution to Tata Steel’s consolidated revenue and Ebitda will remain marginal, Moody’s added.