2 Tata Group Stocks To Buy Next Week For Potential Upside of Up To 16%

Amid a volatile market, brokerage companies like Sharekhan and Prabhudas Lilladher are bullish on 2 Tata group stocks. While Prabhudas Lilladher is bullish on Tata Steel with a target price of Rs144 signalling a possible upside of 13.65%, Sharekhan has recommended to buy Tata Consultancy Services (TCS) with a target price of Rs. 4,200, indicating a potential upside of 16.58% from the present market price.

Tata Steel

The research analysts of Prabhudas Lilladher said "Tata Steel has announced a proposal to setup a 3mtpa Electric Arc Furnace at its Port Talbot steel making facility for capex of GBP 1.25bn. The proposed project will get GBP500mn grant (40% of the project cost) from the UK government and adequate policy support for smooth transition to green steel making in the UK at competitive landscape. While first stage of the process stands complete with this agreement, consultations with unions involved are expected to close in next three months.Capex is planned over next three years post successful consultation and subject to relevant regulatory approvals."

"We believe that the Tata Steel UK (TSUK) transition is EPS accretive given a) current cash losses will end, as company will import substrate instead of producing at old facilities, b) one-time cost will exist, but TSUK is expected to be in better situation than earlier case of recurring cash burn, c) volatility in coking coal prices won't directly affect TSUK earnings, and d) likely fall in energy costs, as UK moves towards renewable sources. We revise our FY25E EBITDA estimates upwards by 5% to Rs411bn and introduce FY26E earnings estimates. Maintain 'Buy' at revised TP of Rs 144 (Rs 137 earlier) assigning EV/EBITDA multiple of 5x for FY25E EBITDA for TSE," the brokerage said.

"We have incorporated TSUK capex of USD1.55bn (GBP1.25bn) over FY25-27E and reduced maintenance capex a bit as old assets won't require maintenance anymore. With ongoing efforts by TSUK, sustainable EBITDA/t of USD100/t for consolidated TSE (Tata Steel Europe) looks achievable as importing substrate will resume from FY25; Tata Steel Netherlands is profitable; although production from new TSUK project will only come FY28 onwards," further added the brokerage.

TCS

"Despite the uncertain environment, deal momentum for TCS has been robust with average deal wins of ~$8.9 bn over Q1FY23-Q1FY24 (stronger deal wins of $1bn plus in the more recent quarters). In recent months, the company has won large deals from JLR/NEST and BSNL with deal TCV of $1bn/$1.1bn and $1.8 bn respectively. These large deal wins would provide further resilience to its revenue growth profile. TCS's strong domain expertise, geographical presence, and ability to cross-sell make it well-positioned to grab market share during this challenging environment along with opportunities emerging from vendor consolidation," said the brokerage firm Sharekhan in a note.

"Revamp of the organisational structure undertaken by the new CEO is expected to alleviate concerns and aid in driving growth. As concerns on macro uncertainties wane from peak levels, discretionary spends are expected to gradually improve from CY24 along with reduced deal win cycle and faster deal conversion of the deal pipeline to revenues. We believe despite the challenging environment, TCS is well placed to grab cost takeout as well as digital transformation programs along with opportunities from vendor consolidation. Hence, we maintain Buy rating on TCS with revised price target (PT) of Rs. 4,200. At the CMP, the stock trades at 25.5x/22.8x its FY25/26E EPS," the brokerage added.

"We believe despite the challenging environment, TCS is well placed to grab cost takeout as well as digital transformation programs along with opportunities from vendor consolidation, which are reflected in robust deal wins. We have fine-tuned the earnings estimates for FY24E/ FY25E and introduced FY26 earnings estimates. We expect 9%/11.2% Sales and PAT CAGR over FY23-26E," the research analysts of Sharekhan said in a report.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.