Fitch revises Tata Chemicals' outlook to 'positive'; affirms ratings at "BB+"

Tata Chemicals informed that Fitch Ratings has revised the outlook on the company's long-term foreign-currency issuer default rating (IDR) to 'positive' from 'stable' and affirmed the rating at "BB+".

Fitch Ratings said: The revision is due to our expectation that Tata Chemicals Limited's (TCL's) net EBITDA leverage will remain below 2x over the financial year ending March 2023 (FY23) to FY26 (FY22: 1.9x).

We also expect its free cash flow (FCF) margin to improve over FY24-FY26, from an average of -2.5% in FY19-FY23, despite high average capex intensity of 10%. TCL could generate better FCF than our forecasts through stronger-than-expected earnings and/or prudent management of its capex programme, which is reflected in the outlook.

The agency believes that TCL's leading market position, cost-competitive operations and the sector's end-market diversification mitigate the risks to its credit profile from its smaller EBITDA scale versus 'BBB-' rated chemical industry peers, which Fitch regarded as a drag on its rating in the past.

TCL's cash flows have remained resilient in recent years despite the pandemic-induced demand shock and rising energy costs amid geopolitical pressure, notwithstanding its smaller scale, which is due to the soda ash sector's smaller market size than other chemical and commodity sectors, it added.

Tata Chemicals is the world's third-largest producer of soda ash, with a global capacity of 4.137 million tonnes per annum, or 4.353 million tonnes including sodium bicarbonate, and manufacturing operations spread across India, the US, UK and Kenya.

The company had reported 27% rise in consolidated net profit to Rs 432 crore on a 32% increase in revenue to Rs 4,148 crore in Q3 FY23 over Q3 FY22.

The scrip added 0.66% to currently trade at Rs 971.15 on the BSE.

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