Moody's Upbeat on Tata Steel's Future Earnings Amid Challenges

Moody's maintains a stable outlook on Tata Steel, forecasting improved earnings for the next two fiscal years despite challenges in the steel sector. The report predicts EBITDA to rise significantly by 2026, driven by enhanced production in India and recovery in European operations.

Moody's Rating on Wednesday announced that it has maintained a stable outlook on Tata Steel, anticipating that the steel giant will see an improvement in its earnings over the next two financial years.

According to a report by Moody's, Tata Steel's consolidated EBITDA is projected to be approximately Rs 290 billion by the fiscal year ending March 2025 and Rs 380 billion by fiscal 2026, up from Rs 241 billion in 2023-24.

'The rating affirmation and stable outlook reflect our expectation that the structural improvement in Tata Steel's earnings over the next two years will mitigate the risks associated with new state taxes on mining activities in India and developments at its operations in Europe, amid challenges in the broader steel sector,' said Hui Ting Sim, Moody's Ratings Assistant Vice President and Analyst.

The forecast assumes that Tata Steel's Indian operations will generate EBITDA per tonne of Rs 14,700-Rs 15,300 in FY25 and FY26 before state mining taxes, which is consistent with the company's 8-year average earnings. The rating agency also expects the addition of five million tonnes per annum (mtpa) of production capacity at Kalinga Nagar in Odisha to gradually increase Tata Steel's steel deliveries in India to around 23 million tonnes by FY26 from 20 million tonnes in the previous fiscal year.

Furthermore, Tata Steel's European operations are projected to climb in the next two years, turning EBITDA from slightly negative in FY25 to around Rs 30 billion in FY26. Profitability at the Netherlands plant is expected to recover after losses in FY24 due to operational disruptions caused by blast furnace relining. Losses at its UK operations are also anticipated to reduce following the shutdown of loss-making blast furnaces.

Tata Steel remains one of the top three steel manufacturers in India with significant offshore operations.

(With inputs from agencies.)