Tata Steel informed BSE on January 14, 2016 that, Standard and Poor’s has downgraded the credit rating of the company to ‘BB-‘ from ‘BB’ because of lower steel price and compressed profitability.
The rating agency, S&P informed that, the leverage ratios of cash flow would remain weak for the next 12-24 months.
However, the outlook remains stable. S&P mentioned that, the stable outlook reflects the expectation that Tata Steel‘s performance will likely to recover over next 12-15 months as profitability at the India operations gradually improve and the performance of European operation remain stable.
The financial risk profile was also to change to ‘highly leverage’ from ‘aggressive’ to reflect weakened cash flow. The profitability of Tata Steel’s backward integrated operation has suffered because of the fall in average selling price of steel by more than 40% in the past 18 months. Apart from this, its EBITDA per ton declined to about Rs 8,500 in the second quarter versus Rs 15,000 in the year-ago period.
It added that it expected the resumption of mining to partly help restore profitability but it is unlikely to revert to the historical highs of about Rs 13,000-Rs 15,000 a ton over the next two years, given the steep fall in steel prices.
S&P expects that the performance of the company will improve in 2017 and the improvement will be gradual.
SOurce: ISMW