Moody's maintains stable outlook for Tata Steel, expects improved earnings

Moody's Rating on Wednesday said it has maintained a stable outlook on Tata Steel, expecting the domestic steel major to improve its earnings over the next two financial years.

In a report, Moody's said it expects Tata Steel's consolidated Ebitda to be around Rs 290 billion in fiscal ending March 2025 and Rs 380 billion in fiscal 2026, from Rs 241 billion in 2023-24.

"The rating affirmation and stable outlook reflect our expectation that the structural improvement in Tata Steel's earnings over the next two years will mitigate the risks associated with new state taxes on mining activities in India and developments at its operations in Europe, amid challenges in the broader steel sector," Hui Ting Sim, a Moody's Ratings Assistant Vice President and Analyst, said.

Its forecast assumes that Tata Steel's India operations will generate Ebitda per tonne of Rs 14,700-Rs 15,300 in FY25 and FY26 before state mining taxes, which aligns with the company's 8-year average earnings.

Further, the rating agency expects the addition of five million tonnes per annum (mtpa) of production capacity at Kalinga Nagar in Odisha will gradually lift Tata Steel's steel deliveries in India to around 23 million tonnes by FY26 from 20 million tonnes in the previous fiscal.

In addition, Tata Steel's operations in Europe will increase over the next two years, turning Ebitda (earnings before interest, taxes, depreciation, and amortization) from slightly negative in FY25 to around Rs 30 billion in FY26.

The profitability at the Netherlands plant will recover following losses incurred in FY24 from operational disruptions due to a relining of its blast furnace. Losses at its UK operations will also recede after the shutdown of its loss-making blast furnaces.

Tata Steel is among the top three steel makers in India with offshore operations.