Moody's Investors Service Wednesday said it has revised the outlook on JSW Steel to positive from stable, citing improving credit situation.
Moody's also affirmed JSW Steel's Ba2 corporate family rating (CFR) and the Ba2 rating on the company's senior unsecured notes, it said in a statement.
The corporate family ratings (CFRs) are opinions of a corporate group's ability to honour all of its financial obligations, according to Moody's.
"Moody's has changed the outlook on JSW Steel's ratings to positive from stable. It has also affirmed Ba2 CFR and the Ba2 rating on the company's senior unsecured notes," it said.
Kaustubh Chaubal, a Moody's Vice President, said the positive outlook reflects the improving trajectory of the company's credit metrics mainly due to its competitive and efficient production costs, solid domestic demand conditions and Moody's expectation for a supportive ongoing price environment.
"The positive outlook also incorporates our expectation that the company will remain selective in any acquisitions, funding them with a prudent mix of debt and equity.
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"We expect that any such acquisitions will be earnings accretive and help in rapid deleveraging, leading to at most only a temporary spike in adjusted debt/EBITDA leverage," said Chaubal.
JSW Steel's CFR continues to reflect the company's large scale and strong position in its key operating markets.
It also shows the company's strong product offering with a rising share of high-margin value-added products catering to key end-markets, such as automotive and domestic construction and infrastructure, Moody's said.
The CFR also reflects the inherent cyclicality of the steel industry and the steel maker's limited raw material integration, although this risk will be somewhat mitigated following the commissioning of its five iron ore mines, which once operational will meet up to 15 per cent of its total iron ore requirements, it said.
JSW Steel's use of advanced technology towards maximizing raw material efficiencies underpins its competitive conversion costs and high profitability, says Chaubal.
"JSW Steel's cost of production is among the lowest when compared with other leading Asian steel companies, and supports EBITDA and EBITA margins of 22 per cent and 26 per cent respectively.
"The company's EBITDA/tonne has consistently improved over the last year and remained above Rs 12,000, the highest level in 10 years," Moody's said.
JSW Steel is a leading manufacturer of a wide range of steel products in India. It has an installed capacity of 18 million tonne per annum.