Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Credit rating agency Fitch Ratings has downgraded JSW Steel and Tata Steel’s outlook to ‘negative’ due to a slump in steel demand for the fiscal year 2021 ending March 2021. The COVID-19 pandemic is expected to have a far-reaching economic impact. Fitch has also revised the outlook for Tata Steel UK’s (TSUKH) Long-Term IDR to ‘B-‘ from ‘B’. JSW and Tata Steel’s senior unsecured rating has been revised from ‘BB’ to ‘BB- ‘. 


The Indian Steel Association has estimated an 8pc drop in domestic demand in FY2021. Fitch projects a 6pc decline in sales volumes for JSW and Tata Steel. The agency also expects a lower EBITDA in FY2021 amid a drop in volume and weaker steel prices. It, however, expects volume and margins to significantly increase in FY2022 due to a broader economic recovery.


JSW Steel 

JSW’s ratings are based on assumptions that its EBITDA leverage is likely to remain above the previous negative rating action threshold of four times over the next three years. The agency evaluated an increase in gross leverage by more than six times in FY2020, while the company’s sales volumes and EBITDA margins shrank towards the end of FY2020 due to COVID-19 related lockdowns which brought businesses to a grinding halt.

Fitch speculates the company’s EBITDA to further fall by 10pc in FY2021 COVID-19 economic impacts, despite a gradual recovery in the year. Gross leverage to increase over 7 times in from 3.3times in 2019 due to a fall in EBITDA and negative cash flow. The agency forecasts leverage to improve to around 4.5 times in FY2022 on the back of higher EBITDA, controlled Capex and positive cash flow.


Tata Steel

Tata Steel’s downgrade is based on Fitch’s expectation that consolidated gross debt/EBITDA leverage could remain above Fitch’s previous negative ratings. Tata Steel’s increased leverage, lower EBITDA and negative cash flow in FY2020 were the outcome of weak demand in India, lower steel prices and EBITDA loss in Europe.


Fitch estimates the company’s EBITDA to decline further in FY2021 and leverage to increase to above 10 times. The agency assumes European operations are likely to contribute to EBITDA from FY2022, supported by Tata Steel’s ongoing efforts to improve efficiency and cut costs. Slower gains in Europe could aggravate the impact of weak industry conditions on the company’s financial and credit profile, said Fitch. Moreover, the agency withdrew TSUKH’s Long-Term IDR because TSUKH is no longer issuing debt and there is no Fitch-rated debt outstanding following refinancing by Tata Steel for its European operations in January 2020.

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