Moody's To Upgrade Ratings Of Tata Steel, British Arm

They noted the UK arm has improved the cost profile of its plants and generated five consecutive quarters of positive Ebitda despite a fragile recovery in European demand.

However, the agency has warned that while it expects Tata Steel UK to maintain positive Ebitda in FY15, with Ebitda per tonne at USD40/t, and reduce its reliance on the cash support from its parent, it is unclear how it can sustainably return to positive cash flow and pay back the debt. The Group as a whole has close to Rs 75,000 crore debt.

"Tata Steel's Ba3 rating has been held back by Tata Steel UK's weak performance in recent years. With the British arm now on a better footing both operationally, and financially, the strength of the parent can better benefit the Group," said Greene, who is the lead analyst for Tata Steel.

Tata Steel, on a standalone basis, has consistently been one of the most profitable steel companies globally. Despite its strength, terms of the current British arm's loan would cause challenges for the Group in September 2015, the global rating outfit said.