Tata Steel's Credit Metrics Set to Improve in FY25 Due to Strong Demand and Lower Coking Coal Prices

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CreditSights Projects Improved Credit Metrics for Tata Steel in FY25 Amid Strong Domestic Demand and

Team FS

04/Jun/2024

Key Points:

CreditSights anticipates a significant improvement in Tata Steel's credit metrics for FY25.
Tata Steel reported a 64.59% decline in net profit for the March quarter, primarily due to lower realizations and exceptional expenses.
FY25 EBITDA expected to grow by 20-25% YoY, supported by strong domestic demand and lower coking coal costs.

CreditSights, a Fitch Solutions company, anticipates improving Tata Steel's credit metrics in the current fiscal year. This positive outlook is attributed to infrastructure-driven domestic steel demand and lower coking coal prices. Last week, Tata Steel reported a 64.59% decline in consolidated net profit for the March quarter, amounting to US$ 66.7 million (Rs. 554.56 crore), compared to US$ 188.5 million (Rs. 1,566.24 crore) in the same period the previous year. This decline was primarily due to lower realizations and expenses for certain exceptional items.

In its report, CreditSights projected a meaningful improvement in Tata Steel's credit metrics for FY25, driven by robust EBITDA growth and reduced capital expenditures. The firm expects total FY25 EBITDA to grow by approximately 20-25% YoY, supported by strong infrastructure-led domestic steel demand, a slight recovery in steel price realizations, and lower coking coal input costs, which could offset higher iron ore input costs. CreditSights also noted that Tata Steel's annual results were "less poor than we feared." Revenues and EBITDA decreased by 6% and 27% YoY, respectively, as continued losses from European operations and higher operating expenses outweighed strong Indian revenues and reduced coking coal input costs.

Despite the decline in net profit for the March quarter, the underlying trends suggest a positive trajectory for Tata Steel in FY25. The anticipated growth in EBITDA reflects the strength of domestic infrastructure projects and the beneficial impact of lower input costs. This growth is essential for enhancing the company’s financial stability and improving its credit metrics.

Tata Steel’s strategic focus on optimizing its operations and managing input costs efficiently will likely play a crucial role in achieving the projected improvements. The company's ability to leverage strong domestic demand while mitigating challenges in its European operations will be vital to sustaining this positive outlook.

Moreover, the projected recovery in steel price realizations and the strategic management of capital expenditures are expected to contribute significantly to the overall financial performance of Tata Steel in the coming fiscal year. By reducing capital expenditures and focusing on high-demand segments, Tata Steel can optimize its resource allocation and enhance profitability.

In conclusion, CreditSights’ forecast of improved credit metrics for Tata Steel in FY25 is supported by a robust infrastructure-driven domestic demand, lower coking coal prices, and strategic financial management. These factors combined position Tata Steel for a notable rebound in its financial performance, highlighting its resilience and adaptability in a dynamic market environment. The company's focus on strengthening its core operations and managing costs efficiently will be pivotal in realizing these positive projections and maintaining its competitive edge in the global steel industry.

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CreditSights Projects Improved Credit Metrics for Tata Steel in FY25 Amid Strong Domestic Demand and

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