Tata Steel shares surge 2% on rating upgrade

Shares of Tata Steel, a wholly-owned subsidiary of Tata Sons, rose over 2% on September 26, a day after Moody's Investors Services upgraded the long-term issuer rating of the company to Baa3 from Ba1.

On Tuesday, shares of Tata Steel surged as much as 2.5% to hit an intraday high of ₹130.55. The share price of Tata Steel opened at ₹129.70, up 1.8%, as against the closing price of the previous session at ₹127.35. At 12:00 pm, the share price of the steel major was trading 1.77% higher at ₹129.60.

At present, the company's share price is trading 3.8% lower than the 52-week high, which the company touched on September 18 this year. The share price of the company is trading 36.4% higher than the 52-week low of ₹95, which the company touched on September 28 last year. In the past one month, three months and six months, the company has given 10.91%, 18.02% and 29.84%, respectively in returns.

Moody's has also changed the outlook of Tata Steel from ‘stable’ to 'positive.'

"The upgrade reflects our expectation of the continued strength in Tata Steel's credit profile due to the company's solid market position in India. We expect the company's profitability to increase even as softer steel prices dent revenues," says Kaustubh Chaubal, senior vice president, Moody's.

In the April to June quarter this year, the company's consolidated net profit slumped by 93% year-on-year (YoY) to ₹525 crore from ₹7,714 crore, from the same period of the corresponding year. The consolidated revenue from operations dropped 6.3% to ₹59,490 crore compared with ₹63,430 crore in the year-ago period, dented by lower volumes, partly offset by higher realisations across geographies. 

Earlier this month, the company announced a  joint agreement on a proposal to invest in Electric Arc Furnace steelmaking at the Port Talbot site with a capital cost of 1.25 billion pounds. This includes a grant from the U.K. government of up to 500 million pounds.

According to the company, the project would bolster Britain’s steel security and would be the first major step towards decarbonisation of the local steel industry, reducing direct emissions by 50 million tonnes over a decade.

The proposed project would involve Tata Steel's balance sheet being restructured with potential elimination of the current cash losses in the UK operations and non-cash impairment of legacy investments, the Tata Group company said.

The company is also aiming to invest approximately 20 million pounds over 4 years to set up two additional Centres of Innovation & Technology in the UK at the Henry Royce Institute at Manchester (for advanced materials research) and at Imperial College London (for research in Sustainable Design and manufacturing).