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.



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

Builder association requests independent regulator for cement industry

According to BAI, all free markets needed a regulator not only to regulate the sector but to expedite grievances of others

Madurai: The Builders' Association of India (BAI) has suggested setting up an independent regulator for the cement industry on the lines of Insurance Regulatory and Development Authority (IRDA), following recent developments, reports PTI.
The Regulator should have quasi-judicial authority, BAI trustee DL Desai said. He told reporters in Madurai that the Competition Commission of India's penalty of Rs6,300 crore on 11 cement companies last month for violating provisions of the Competition Act, 2002 was a landmark judgement under the act.
He suggested CCI follow the trend set by its sister bodies like tribunals of Income tax, sales tax and Excise Departments and direct cement companies to deposit 50% of the fine before accepting their petition.
The BAI would oppose tooth and nail any petition from cement companies seeking a stay on recovery of the penalty. The development in this case, Desai said, would be path breaking in fighting cartelisation in vital commodity sectors.
According to him the fine of Rs6,400 crore was meagre compared to profits earned by the industry with an installed capacity of 320 million tonnes, with the present demand standing at 250 MT. CCI's penalty on them was only 0.5 times their profits in 2009-10 and 2010-11, he said.
He pointed out that even the Parliamentary Standing Committee headed by Shantha Kumar had concluded that price escalation in the cement sector was profit-driven and had recommended setting up a regulator.
All free markets needed a regulator not only to regulate the sector but to expedite grievances of others, he said.


BHEL Q1 up 13% to Rs921 crore

During the June quarter, BHEL's net sales also rose by 17% to Rs8,326 crore from Rs7,132 crore last year

New Delhi: State-run power equipment maker BHEL has reported about 13% jump in net profit at Rs921 crore for the first quarter ended June 2012, reports PTI.
It had posted net profit of Rs815.5 crore in the April- June quarter of 2011-12, BHEL said in a statement on Thursday.
The company said, during the June quarter, its net sales rose about 17% to Rs8,326 crore, from Rs7,132 crore in the same period of the previous fiscal.
The company has an outstanding order book position of Rs1.3 lakh crore at the end of June 2012.
It includes the Rs950 crore contract for supplying equipment for 1,020 MW hydel project in Bhutan, bagged by BHEL last month.
The order envisages manufacture, supply, erection and commissioning of the electro-mechanical equipment for the 1,020 MW Punatsangchhu-II Hydroelectric project.
BHEL is also executing the 1,200 MW Punatsangchhu-I project in Bhutan. It is being set-up under a bilateral agreement between India and Bhutan.
Located around 80 Km from Thimphu on the banks of the Punathsangchu River in Western Bhutan, the project is an environment friendly run-of-the-river scheme.
The company has, so far, executed three hydro projects - 336 MW Chukha, 60 MW Kurichu and 1,020 MW Tala in Bhutan. These projects account for nearly 95% of the total power generating capacity in Bhutan.
BHEL has established footprint in six continents, spanning over 75 countries.


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