Tata Group's Steel Stock Up 33% From 1-Year Lows: Can India Biz Offset Losses From Europe?

Tata Steel's share price gained over 1% on Monday, reaching near Prabhudas Lilladher's target price in a single day. Tata Steel is currently at Rs 135, and Prabhudas Lilladher set a target price of Rs 137, which this Tata Group-backed steel giant may surpass in the coming trading session.

On BSE, Tata Steel's share price ended at Rs 135 apiece, up by 1.01% with a market cap of over Rs 1.66 lakh crore. The stock touched an intraday high of Rs 133.50 apiece. Currently, the stock is racing towards its 52-week high of Rs 142.15 apiece and is up by 33% from its 52-week low of Rs 101.65 apiece.

Tata Steel's stock price is in focus after its Q3 results which was a mixed bag with Europe business dampening potential growth and business in India shining.

In Q3FY24, consolidated Revenues for the Oct-Dec quarter stood at Rs 55,312 crores. EBITDA was up 47% QoQ to Rs 6,334 crores and the EBITDA margin was 11%. The company reported a profit of Rs 522 crore, against losses of Rs 2,502 crore in Q3FY23 and Rs 6,511 crore.

Further, in Q3FY24, the company has spent Rs 4,715 crores on capital expenditure during the quarter and Rs 13,357 crores for 9MFY24. The phased commissioning of the 5 MTPA expansion at Kalinganagar has commenced.

On geographical-wise, the company's India revenues were Rs 35,011 crores and were broadly stable on a QoQ basis. While UK revenues were £603 million and EBITDA loss stood at £159 million. Meanwhile, Netherlands revenues were £1,239 million and EBITDA loss stood at £117 million.

Prabhudas Lilladher trimmed its estimates on Tata Steel post-Q3.

In a research report, Prabhudas Lilladher said, "from TSE. Tata Steel's (TATA) 3Q consolidated operating performance was better than PLe on account of stronger TSI. Tata Steel Europe (TSE) continued to disappoint on weak volumes at TSN, higher operating costs at TSUK and weak steel pricing."

PL's note further said, "TSI EBITDA/t of Rs16,905 was above estimates on the efficient blending of coking coal and higher sourcing of intermediates. In 4Q, TSN volumes are expected to improve and lower energy costs, higher operating leverage to reduce TSN losses."

On valuation, PL's note said, "Key parameters to watch are a) progress on closure of TSUK blast furnaces and b) commissioning of Kalinganagar blast furnace (KPO II) & stabilization which will drive volume growth in FY26E. We expect Revenue/EBITDA/PAT CAGR of 6%/8%/31% over FY23-26E. At CMP, stock is trading at 7x/5.6x EV of FY25E/FY26E EBITDA. Retain 'Accumulate' rating with revised TP of Rs137 (earlier Rs140) valuing at 6x EV of Mar'26E TSI EBITDA."

Moreover, in its report, Centrum said, "Tata Steel Europe continue to report losses due to weak demand, higher cost and operating leverage loss due to relining of Netherland plant. Netherland plant is likely to start production from Dec-23, and likely to turnaround in FY25."

Centrum's note said " Further, the transition of UK business will remove overhang and turnaround into sustainable business. While, India has added 5mtpa of flat steel capacity at Kalinganagar and another 0.75mtpa EAF capacity in FY26 driving volume growth and profitability."

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