Fitch Says Outlook For Tata Steel Positive, Stable For JSW Steel

Rating agency Fitch Ratings has affirmed Tata Steel's (TSL) Issuer Default Rating (IDR) at 'BB+' with a positive outlook. It also affirmed JSW Steel's (JSWS) long-term IDR at 'BB' with a stable outlook.

About Tata Steel, Fitch said the positive outlook reflects expectation that the company’s EBITDA leverage (total debt/EBITDA) is on track to decline to below 2.5x by FY25) This would imply better financial and overall credit profiles, despite increasing materially in FY23.

TSL's business profile remains robust, driven by its significant raw material output and highly cost-efficient assets in India.

“We estimate that leverage rose to around 3.0x in FY23 (FY22: 1.2x), following a sharp fall in margins and EBITDA in line with weakness in the global steel industry,” Fitch said. TSL's Indian operations were affected by the imposition of a six-month steel export duty, while in Europe, a weaker cost position resulted in an EBITDA loss in 2HFY23.

The company’s annual margins in India are expected to improve from FY24. This, along with a margin recovery in Europe and jump in sales volumes in FY25, should drive EBITDA growth and deleveraging despite higher capex.

Fitch said JSW Steel’s affirmation is based on expectations of a significant reduction in its total debt to EBITDA leverage. It is expected to decline from around 6.0x in March 2023 (FY23) to below 3.5 by FY25, a level consistent with its rating.

JSWS's margins and EBITDA fell sharply in FY23, reflecting global steel industry weakness and the impact of a steel export duty imposed by India for around six months. “We expect margins to improve, which, along with sustained sales volume growth, should drive EBITDA growth and deleveraging, despite higher capex,” it said.

JSWS's business profile remains robust, supported by its low-cost position, a majority share of value-added and special products in sales, and substantial scale.