Companies & Sectors
S&P lowers outlook of Tata Steel, UK unit to negative

The rating agency said it may lower the rating on Tata Steel if the company’s consolidated operating performance does not recover in line with its expectations

New Delhi: Standard & Poor’s (S&P) on Thursday lowered the outlook of Tata Steel and its UK-based subsidiary Tata Steel UK Holdings (TSUKH) to ‘negative’ from 'stable' citing continued weak performance, reports PTI.

“We assess Tata Steel on a consolidated basis, including Tata Steel UK Holdings (TSUKH), which represents about half of the company’s total consolidated assets. We expect the company’s consolidated profit margin to continue to be weak, resulting in its debt-to-EBITDA ratio staying above 4 times,” S&P said in a statement.

The ratings agency said it expected the company’s profit margins to improve when the “company’s India operations receive the full benefit of a recently commissioned 3 million tonne annual capacity”.

These benefits are expected to accrue only in the fiscal year ending 31 March 2014, it added.

S&P has also affirmed its ‘BB’ long-term corporate credit rating on Tata Steel and its ‘BB’ issue rating on the company’s senior unsecured notes.

‘BB’ generally indicates less vulnerability in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.

At the same time, it also lowered the recovery rating on TSUKH’s 3.53 billion pound bank loan to '2’ from ‘1’ and the issue rating to ‘BB-’ from ‘BB’, the statement said.

“We have revised the outlooks to reflect the poor performance of Tata Steel’s wholly-owned European subsidiary, TSUKH,” said S&P’s credit analyst Suzanne Smith.

The rating agency said it may lower the rating on Tata Steel if the company’s consolidated operating performance does not recover in line with its expectations.

This is likely to be due to further slowing in the European operations, it said adding, “A double dip in the European economy or worsening steel industry conditions in India would result in EBITDA per tonne of about $300 or lower, further hurting Tata Steel’s financial ratios.”

S&P said it may revise the outlook to stable when it expected the company to improve its operating performance in line with its earlier expectations, resulting in a ratio of adjusted debt to EBITDA of about four times and funds from operations to adjusted debt of more than 15%.

“In our view, the European steel industry will continue to face soft demand and excess steel-making capacity for the next one to two years. We therefore expect TSUKH to continue to have a very low margin of 2.3% in the fiscal year ending 31 March 2013,” it added.

Limited pricing flexibility, slower-than-expected sales growth at the India operations following brownfield capacity expansion, and lower volumes in Europe will keep EBITDA margin at about 12% in fiscal 2013.”

S&P said “We also expect Tata Steel to generate negative free operating cash flow of Rs6,000 crore in fiscal 2013, resulting in only a gradual recovery in the company's financial metrics”.

We expect the ratio of debt to EBITDA to recover to 4.5 times in fiscal 2013 and 3.5 times in fiscal 2014, it added.

Saying that the improvements will be mostly driven by growth in India operations, the agency assessed Tata Steel’s liquidity as ‘adequate’, and stated that Tata Steel has adequate resources and willingness to ensure that liquidity at TSUKH is also adequate.

User

COMMENTS

ashok sen

5 years ago

Tata Steel U.K. is a disaster

Tatas should get out, otherwise the indian outfit would keep suffering.The story here is quite different to Tata Motors, which has a demand outside U.K.;mainly in China.
The steel unfortunately can sell in europe primarily, where for a long time to come,the demad is going to be poor.

This buy of Corus,was a terrible mistake by Tatas.The difficulty,in these terrible times for european industry, will be to find a buyer to pay at least half of what Tatas paid for the purchase

Indian market trends

The Sensex rose 3% while the Nifty went up 4%. The ML Micro-cap Index advanced 6% and the ML...

Premium Content
Monthly Digital Access

Subscribe

Already A Subscriber?
Login
Yearly Digital+Print Access

Subscribe

Moneylife Magazine Subscriber or MSSN member?
Login

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Fund flows

Foreigners: Foreign institutional investors were net buyers of stocks (Rs4,607.30 crore)....

Premium Content
Monthly Digital Access

Subscribe

Already A Subscriber?
Login
Yearly Digital+Print Access

Subscribe

Moneylife Magazine Subscriber or MSSN member?
Login

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)