Shares of Tata Steel gained close to 2 percent on Tuesday in an overall weak market. Shares of the steel maker has been gaining for the last four days and has risen 4.65 percent in the period.

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Ratings agency Moody's Investors Service on Monday revised the outlook on Tata Steel to ‘positive’ from ‘stable’ after reflecting upon the company's growing track record of delivering a solid operating performance while maintaining conservative financial policies.

At the same time, Moody's also affirmed Tata Steel's Ba1 corporate family rating (CFR).

There is a likelihood that upward rating pressure will build over the next 12 months if recent performance and credit metrics improvements are sustained," Kaustubh Chaubal, Moody's Senior Vice President, said in a press release.

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Reduction in credit risk

Moody's also said that the structural improvement in Tata Steel’s capital structure during the last two financial years has created a lasting buffer to the company’s key credit metrics and liquidity, thus reducing the company’s overall credit risk.

Tata Steel is poised to reduce its debt by at least $1 billion in the current financial year 2022-23, in sync with its publicly articulated capital allocation policy.

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Tata Steel generated consolidated revenues of $32.8 billion during the financial year that ended in March 2022.

Adding that Tata Steel’s liquidity position is “good”, Moody's said that Tata steel currently had $3.1 billion in cash and other liquid investments at the end of March 2022. At this rate, the estimated $6.5 billion-$7.0 billion in operating cash flow till September 2023 should be more than sufficient to meet its $9.0 billion in capital expenditure, announced acquisitions, modest dividends, and scheduled debt repayments over the same period.

Moody’s said rising global interest rates to curb inflation and an increase in Indian steel export taxes have somewhat dampened steel prices.

The ratings agency remains cautious in its forecasts and assumes that the business' EBITDA/ton (earnings before interest, taxes, depreciation, and amortisation) will decline from $180 in fiscal 2022 to around $140 -$150 in fiscal 2023 and further slide to $40 -$50 in fiscal 2024.

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