Tata Steel Shares Hit Record Highs: Brokerage Sees Further Upside

Tata Steel‘s share price extended gains for the fourth straight session to hit a new all-time high of ₹181. However, analysts at Axis Securities see the stick going further up.

The Tata Steel Analyst: Analyst at Securities assigned a “buy” rating for the stock with a target price of ₹197. The brokerage sees the Tata Steel share price hitting its target in six to nine months. The target indicates an around 10% upside from the stock’s last closing price of ₹178.90.

The Tata Steel Thesis: The brokerage listed several reasons for its positive view on the Tata Group company. One of them was the easing of costs in Europe. In the UK, the brokerage said that Tata Steel plans to shut down Blast Furnaces 4 and 5 by June and September 2024, respectively. Post-shutdown, the UK operations will rely on hot-rolled coils from India and the Netherlands to sustain its downstream assets.

As per the analysts, the UK business aims to achieve cash neutrality in the second half of FY25 and become EBITDA positive by FY26. In the Netherlands is set to be positive EBITDA per tonne and net cash flow positivity from the first quarter of FY25.

In India, Tata Steel’s Kalinganagar Plant (KPO) Phase II expansion is expected to add 1.7 MTPA (million tonnes per annum) of production in FY25. The total incremental sales volume on a consolidated basis for FY25 is projected to be 1.4 MTPA, accounting for the relining of Blast Furnace G at Jamshedpur, which will temporarily reduce volume. The KPO-II's EBITDA per tonne is anticipated to surpass other Indian assets, with India’s blended EBITDA per tonne improving as KPO-II ramps up to its full capacity of 5 MTPA by FY26.

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The brokerage also added that the introduction of the Carbon Border Adjustment Mechanism (CBAM) will make steel exports to the UK and EU more costly, highlighting the strategic importance of transitioning to green steel. Tata Steel’s initiatives in this direction are expected to yield a Return on Capital Employed (ROCE) of 12-15% across cycles from EAF and Direct Reduced Iron (DRI) transition investments in the UK and Europe. This transition is vital for maintaining competitiveness in these markets.

Tata Steel plans to finance its green steel transition through a mix of internal funding, project funding, and government support. In the UK, there is a non-binding agreement for a £0.5 billion grant from the government to support the 3 MTPA EAF transition, which will replace the current 3.5 MTPA Blast Furnace. In the Netherlands, the Dutch Parliament has directed the government to negotiate potential support for Tata Steel Nederland’s decarbonization efforts, including the transition of Blast Furnaces 6 and 7 to the DRI route.

Price Action: Tata Steel’s share price was up 1.21% to trade at ₹181.06 in early trade on Monday.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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