BUY Lakhpati Stock! 360% Dividend, NCDs, Job Cuts: Tata's Steel Share Target Raised; Rs 187/TP By Axis Sec

Tata Group-backed steelmaker, Tata Steel Ltd's stock price is recommended to buy after the giant posted in-line earnings. In FY25, the metal giant's Kalinganagar expansion benefits are expected to accrue from the fiscal onwards, while its steel spreads are likely to improve further. Owing to this, brokerage Antique Stock Broking has raised its target price by 17% in Tata Steel. While brokerage Axis Securities has set a target price of Rs 187 for 12-18 timeframe.

Tata Steel is a lakhpati-making stock.

On the last day of May 2024, the stock rallied by 2% to end at Rs 167.45 apiece. Last week, Tata Steel also touched a new 52-week high of Rs 177 before correcting.

With an adjusted price-to-equity ratio of 62.03%, Tata Steel stock is up by nearly a per cent in May 2024. YTD, the stock is among the top metal performers with gains of 20%. In a year, the stock has zoomed by 53%. But Tata Steel's all-time high is of 2,309.35%. The stock was merely at Rs 6.95 apiece 25 years ago on January 1, 1999.

If an investor had bought Tata Steel shares 25 years ago for Rs 1 lakh, their corpus now stands at Rs 24,09,350 at 2,309.35%.

Going forward, Tata Steel is set to pay a final dividend of Rs 3.60 per share or 360% for FY24. For the same, the company fixed June 21, 2024, as the record date to determine eligible shareholders, while the payout is expected on and from July 19, 2024.

Notably, Tata Steel stock is among dividend-paying metal heavyweights. Since the time it delivered its 1st ever bonus issue of 1:1 ratio in August 2004, Tata Steel has paid up to Rs 299 dividend per share. However, the company's its highest dividend payout is Rs 51 per share in 2022, the time its share split. In 2022 alone, Tata Steel paid the most dividends of Rs 63.75 per share.

Apart from dividends and bonuses, Tata Steel has also split its shares in a ratio of 1:10.

In addition to dividends, Tata Steel has also received approval for raising additional funds worth Rs 3,000 crore via non-convertible debentures (NCDs) in one or more tranches on private placement.

Moreover, the company is also on the path of making sharp investments of USD 2.11 Billion (Rs 17,407.50 crore), by way of subscription to equity shares of T Steel Holdings Pte. Ltd (TSHP), a wholly owned foreign subsidiary of the Company, in one or more tranches, during FY2024-25. Also, Tata Steel plans to convert debt instruments aggregating to USD 565 Million (Rs 4,661.25 crore) held by the Company in TSHP into equity shares, during FY2024-25, which it will continue to hold these converted equity shares.

In the latest development, Tata Steel's chief executive officer has reportedly signalled a massive job cut of 2500 employees in the UK business. The company moves to shift to the low-emission electric arc furnace (EAF) process.

BUY Tata Steel Shares:

In its latest report, Antique Stock Broking said, Tata Steel's 4QFY24 consolidated EBITDA at INR 66 bn (in line with our estimate and 9.3% above consensus) declined by 8.6% YoY but grew 5.4% QoQ, sequentially aided by strong domestic sales and lower European losses. Standalone EBITDA at INR 80.5 bn was lower by 7% YoY and 2.5% QoQ.
Standalone blended realization at INR 66,544 per ton (3% below our estimate) shrunk 9% YoY and 5% QoQ. Standalone EBITDA per ton at ~INR 14,846 declined by 11.7% YoY and 12.2% QoQ, primarily impacted by lower realizations and a rise in coking coal costs.

The brokerage cited that Tata Steel's management believes 1QFY25 steel spreads would be an interplay between better realization (about INR 300-350 per ton QoQ decline), lower coking coal costs coming in with a lag and lower volumes (typical Q1 for steelmakers).

Meanwhile, the brokerage factors in higher standalone India volumes (up by 3%/2% in FY25/26) and recovery in Europe (EBITDA rising 37% in FY26), leading to 6% higher consolidated EBITDA in FY26.

Following this, Antique's report on valuation said, "Kalinganagar expansion benefits are expected to accrue FY25 onwards. European operations would improve with the Netherlands business supporting the phased shutdown of the UK blast furnace (phased employee reduction, EAF transition capex). The long-term target to reach 40 mtpa by 2030 and to grow the downstream portfolio from the current 2 mtpa to 7 mtpa indicates an attractive growth prospect."

It lastly added, "We maintain BUY rating with a SoTP-based TP of INR 175 (earlier INR 149) per share at an implied 6.5x FY26E EV/EBITDA multiple (higher from earlier 6.1x, basis incremental volumes from 5 mtpa Kalinganagar expansion and Europe gradually turning EBITDA positive)."

Not just Antique, but also Axis Securities is bullish on Tata Steel stock. This brokerage has advised investors to enter Tata Steel at the Rs 164 level and BUY for a target of Rs 187. The timeframe for the target price is 12-18 months.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, 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.