S&P Global Ratings has revised the outlook of India’s Tata Steel to ‘positive’ from ‘stable’ on the back of strong cash flow, and has reaffirmed its rating of “BBB-”, the rating firm said in a statement on Monday, May 16.
Tata Steel is expected to generate substantial free operating cash flows over the next two years owing to continuing strong steel prices. The resilience of the company’s credit metrics to steel price cycles has also strengthened following a significant reduction in debt over the past 18 months.
The positive outlook reflects the potential for an upgrade for Tata Steel over the next 12-24 months if the company continues to reduce leverage and improves its resilience to steel price cycles, the statement said.
“Tata Steel’s strong free operating cash flows over the next two years will strengthen its credit profile. It is estimated that the company will generate $3-4 billion of free operating cash flows annually over the next two years, given continued strength in steel prices. This is based on our estimate of EBITDA/tonne for the Indian operations averaging about INR 20,000 over the next two years. This is about 40 percent higher than typical levels in the past,” S&P said.