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Rating recognition for recovery run in steel

Mumbai, Aug. 29: Steel Authority of India Limited (SAIL) and Tata Steel today won a rating boost in a move seen as an official recognition of their better fortunes.

The shot in the arm came from Crisil, whose director of corporate ratings, S. Venkataraman, said Tisco’s cost advantages helps it weather volatile prices.

“Tata Steel’s upgrade is driven by the benefits accruing to the company from its improving product mix and consistent cost reductions,” Venkataraman said.

The private sector steel major, he said, will remain profitable even in a situation where its average realisations decline Rs 5,000-6,000 per tonne from current levels.

Explaining how SAIL had moved up the ladder, the rating agency said improvement in its financial profile, and expectations that this trend will continue, have been based on the sustained buoyancy in steel prices.

The rating agency believes SAIL will sustain the turnaround in its performance witnessed over the past two quarters till the end of the end of financial year 2004-05.

The upgrades will help both companies raise debt at reasonable rates to fund their expansion and modernisation.

While Tata Steel’s debt ratings went up to AAA or (highest safety) from AA+ (high safety), SAIL’s bonds will sport BBB (moderate safety) instead of BB (inadequate safety). SAIL’s fixed deposit rating has improved to FA (adequate safety) from FB (inadequate safety).

“Tata Steel’s improving product mix has, to a certain extent, resulted in the company breaking away from the steel price cycle as high-end products are typically less volatile than base grades,” head of corporate ratings at the agency, Mukesh Agarwal, said.

The rating factors in Tata Steel’s ongoing Rs 2000-crore expansion project, to be commissioned in financial year 2006.

“The bulk of Tisco’s high-end sales are through contracts, which offer better price stability. Nevertheless, the company's profitability will still be volatile, though less than that of other players”, Agarwal said.

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