Why Tata Steel Shares Are Upbeat Even As Brokerages Remain Cautious

Tata Steel shares were up on Friday afternoon after brokerages had a mixed stance on the company as it reduced its losses from the European business and showed signs of improvement even as it posted poor results in the March quarter.

What Happened: In its March quarter, the Tata Group company posted a net profit of ₹611 crore, declining 64% from the ₹1,704 crore in the previous year. Its operational revenue went down 6.7% from the previous year to ₹58,687 crore. EBITDA for the quarter was at ₹6,601 crore with an EBITDA margin of 11.2%. 

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Brokerage Views: Nuvama Institutional Equities retained the "hold" call and hiked the target price to ₹177 as they suggest waiting for a lower entry price for favourable risk-reward. The consolidated EBITDA beat its estimates as EBITDA losses narrowed in Europe. Tata Steel Europe's EBITDA losses reduced to ₹684 crore from ₹2,870 crore in the previous quarter. The Netherlands division's EBITDA losses also reduced to ₹200 crore from ₹1,200 crore in the previous quarter. The brokerage expects the Netherlands will turn profitable in Q1FY25. 

Motilal Oswal reiterated its "neutral" rating and revised the target price to ₹160. Motilal also increased estimates on improved European outlook. The company is also set to increase steel capacity to 40 mt.

Kotak Institutional Equities maintained a "sell" call and raised the target price to ₹155, driven by higher earnings from India business due to better growth visibility from expansion projects. 

Morgan Stanley gave an “Equal-Weight” call and raised the target price to ₹145 as management guided for improvements in spreads across FY25 across businesses. The brokerage sees FY25 as a year for transition and deleveraging will take a back seat. Kalinganagar capacity will increase in H2FY25 and some heavy-end assets in the UK might be closed.

On the other hand, Jefferies had a “buy” call with a target price of ₹195, as it expects India volume to increase at a CAGR of 11% over FY24-26. While lower coking prices will provide a cushion to margins, weak Asian steel prices and imports from China will pose a risk to Indian steel prices. The global research firm’s positive is possibly behind the stock’s upbeat movement.

Price Action: Shares of Tata Steel are up 1.58% at ₹166.75 on Friday afternoon.  

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