A strong recovery in Tata Steel's operations in the third quarter (Q3) of the fiscal year ending March 2021 has changed the outlook of global rating agency Moody's Investors Service on the steel major from negative to stable. The global rating agency affirmed the company's Ba2 corporate family rating (CFR). According to the agency, Tata Steel will sustain the improvement over 12-18 months, enabling its consolidated financial metrics to recover to levels more appropriate for its Ba2 CFR. India's (Baa3 negative) steel consumption declined by 55% during the first quarter of fiscal 2021 (Q1 FY21) after a nationwide lockdown to contain Covid-19. After the economy opened in June 2020, pent-up demand from end-user industries like automotive, white goods manufacturing, construction and infrastructure have boosted steel consumption. This has contained the annual steel consumption declined to only about 11%. Moody's estimates shipments for Tata Steel Indian operations (TSI) during fiscal 2021 will stay largely flat. A benign industry environment, supportive government policies in the form of large infrastructure investments and markedly better prospects in the automotive industry have supported steel prices in India. These conditions have propelled TSI's record profitability in recent quarters. TSI's profitability has steadily improved to its 10-year high of Rs 18,948 EBITDA per ton during Q3, from Rs 4,969 in Q1 fiscal 2021. Moody's forecasts a long-term sustainable EBITDA per ton of Rs 13,200 for fiscal year 2022 for TSI, constituting a 30% gap compared with Q3. The company, therefore, has a substantial buffer especially given the benign operating environment. Moreover, the company's backward linkages with entire iron ore needs met from captive sources provide resilience to profitability even if steel prices were to fall severely. In contrast, Moody's estimates shipments at Tata Steel's European operations (TSE) will decline by about 10% during FY21 and for profitability to gradually recover. Europe's economic activity was affected by further lockdowns and a seasonally weak winter quarter, although it has improved since the pandemic's early months. Image Source Also read: Tata Steel Q3 operating profits highest ever