Why ICICI Securities Sees Tata Steel At New 52-Week-High Level?

Tata Steel is a large cap metal company that recorded a market cap of Rs 1,39,612.45 Cr during Friday's closing session. On Friday, the shares of Tata Steel closed on the NSE at Rs 114.35 apiece up by 0.53% from the previous close of Rs 113.75. The stock touched a 52-week-high of Rs 124.30 on (19-Jan-2023) and a 52-week-low of Rs 82.70 on (23-June-2022). However, the research analysts of ICICI Securities have fixed a target price of Rs 125 in a time frame of 3 months only which is reflecting a fresh 1-year high for the stock.

"The Metal index, in the last couple of months, witnessed a steady pullback after the January-February 2023 sharp corrective decline. Many quality stocks in the metal sector have undergone healthy price/time correction and are now offering a favourable risk-reward setup. Within the metal stocks, we remain constructive on metal heavyweight Tata Steel as it is resolving above the last three month's triangular consolidation signalling resumption of up move. Hence, it provides a fresh entry opportunity, said the research analysts of ICICI Securities.

"Buying demand has recently emerged after a higher base at the 200 days EMA (currently at Rs 108) and the 80% retracement of the September 2022- January 2023 up move (Rs 95-124). Key observation is that the stock in the smaller time frame has already taken five months to retrace just 80% of the preceding three month's up move (Rs 95-124). The slower pace of retracement signals a higher base formation," they further stated.

"We expect the stock to head towards Rs 125 in the coming months as it is the confluence of the 80% retracement of the entire April-June 2022 decline (Rs 138-83) coinciding with the high of January 2023," said Dharmesh Shah, Pabitro Mukherjee, Nitin Kunte, Vinayak Parmar and Ninad Tamhanekar, CMT who are the research analysts of ICICI Sec.

They have recommended to buy Tata Steel at Rs 110-113 apiece level, and keep a stoploss of Rs 106.00.

On fundamental outlook of the stock, the research analysts said "In FY23, the higher margin Indian operations accounted for ~66% of overall sales volumes. Furthermore, in India, Tata Steel possesses and operates captive mines that ensure cost-competitiveness and production efficiencies through an uninterrupted supply of raw material. Tata Steel meets 100% of its iron ore requirements in India, through its captive iron ore mines and ~21% of its coal requirements from its captive coal mines."

"Debt reduction guidance for FY24 is at US$1 bn, including working capital unlocking in H2FY24. For FY24E, Tata Steel's overall consolidated sales volumes are expected to ~1.5 MT, higher compared to FY23. The incremental volume is split equally between India and European operations. The company incurred a capex of Rs 4396 crore during Q4FY23 and Rs 14142 crore for FY23. For FY24E, for the consolidated entity, Tata Steel has planned a capex of ~ Rs 16000 crore," they stated.

"Of the total capex of Rs 16000 crore for FY24E, total ~Rs 10000 crore is likely to be incurred for the Indian operations of which ~ Rs 7000 crore will be spent on the Kalinganagar expansion and balance ~ Rs 3000 crore would be spent on sustenance capex and other projects the expected capex for Indian subsidiaries is ~ Rs 2000 crore with respect to European operations, ~ Rs 3000 crore is the capex for the Netherlands' operation, of which ~Rs 1100 crore is for the one-off blast furnace re-alignment. Also, ~Rs 600-800 crore is the capex for the UK operation. The UK operations' capex includes critical licenses to operate, safety certificates and other crucial maintenance capex to run the UK operations," the research analysts of ICICI Securities said in a report.

Disclaimer

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