N Chandrasekaran hopes for a rollback of export duties, but prepares Tata Steel for the worst

• Tata Steel is once again popular with rating agencies and analysts, who are optimistic about the future of the steel sector.
• The optimism stems from Tata Steel’s plans to deleverage and increase capital spending, and continued performance could lead to another round of rating upgrades.
• A debt reduction plan also bodes well for the company at a time when interest rates are rising.

Tata Steel appears to have an advantage a few weeks back after facing challenging policy headwinds as the Indian government imposed hefty export tariffs to contain steel prices in the country. Analysts have revised their outlook from ‘stable’ to ‘positive’ and ‘overweight’.

The chairman of Tata Steel hopes that the increase in export duties by the government is a short-term measure.

“The government has taken sector-specific measures to tackle inflation, which we hope are short-term measures. The steel industry in India is globally competitive and therefore Indian steel companies should be able to expand their capacity,” the company’s chairman said N Chandrasekaran said.

Rating agencies are again optimistic about one of India’s largest steel producers

However, rating agency reviews have not yet taken into account the government’s reversal of the increase in export duties on steel.

While Chandrasekaran hopes for it, he doesn’t quite trust it.

“To better withstand changing market demands and diversify its product portfolio and seize growth opportunities in new materials, the company ventured into the new materials business, comprising large vertical lines of composites, graphene and advanced ceramics, including medical materials” , he said at the company’s annual general meeting held yesterday.

Moody’s has upgraded its ratings and said a further rating upgrade is on the way if Tata Steel continues its performance and improvements in its credit metrics. The plan to reduce debt by $1 billion a year should help with the latter.

Tata Steel is one of the most indebted companies in India Inc., not just the Tata Group, with a total debt of more than ₹75,000 crore (about $10 billion). The company has already announced plans to repay $1 billion a year, but it also has plans to spend $1-1.5 billion as capex.

Analysts at JP Morgan believe that: Europe remains a “strong market”, while volume is also picking up in India. This should give investors a lot of confidence as Tata Steel has claimed it will expand its business in India.

Moody’s also improved their outlook for another major steelmaker – JSW Steel – suggesting renewed optimism in this crucial sector, which has been gaining ground in Europe over the past two years.

Tata Steel doesn’t just rely on a rollback of export duties

The steel industry has reaped the benefits of its competitiveness over the past two years and more recently has taken advantage of sanctions against Russia to achieve record exports to Europe.

In the past two years, India’s steel industry has become so competitive that exports rose to more than $14 billion – more than total exports between 2014-2020.

Since the beginning of this year, however, the Tata Steel share has experienced a lot of volatility. Earlier this month, it finally fell below 1,000 for the first time this year.

$TATASTEEL.NSE recovered its early losses in morning trading on Wednesday, trading at its highest level since June 22, 2022. Currently, the stock is trading below 42% from its 52-week high and the correction is not over yet. The stock price is likely to encounter resistance near 905.

— (@AkhileshJat) June 29, 2022

By comparison, Tata Steel’s shares rose nearly 500% between April 2020 and August 2021, from 250 to 1450 over this time span.

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