Tata Stock Below Rs 150 Recommended As Buy; Potential Upside Of 15% Seen

Steel giant, Tata Steel is a couple of rupees away from hitting its new 52-week high, and brokerage Yes Securities has already recommended to 'ADD' this Tata stock. There is a potential for a 15% upside ahead in Tata Steel due to the tranisitioning of European business, and strengthening its market share in the domestic front.

In its research note, Yes Securities said, "The Indian steel sector has been growing steadily throughout the CY23 and is expected to showcase a similar growth story for the upcoming years. Tata Steel is set to play a vital role in capturing the upcoming growth in the Indian steel demand. On the back of the company's solid financial performance is the ability to time its capex cycles and not let the debt hinder the company's growth plans. With raw material prices showing no signs of easing down, the company's reliance on being backwards integrated has certainly remained useful."

Tata Steel Europe's business has been a drag on the company's financials since its acquisition back in 2007, the brokerage's note said.

However, Yes Securities also highlighted that with the company's announcement on receiving the UK government's support for the restructuring of the company's operations in the UK, we see a turnaround in the business to be highly likely. The company currently has a BF-BOF steelmaking capacity of 3 mtpa, which would be replaced by a 3 mtpa EAF plant. In the meantime, the company will need to source steel substrate from the market however will continue using its downstream capacities to cater to the UK market.

Accordingly, the brokerage said, " We see this change to play out in favour of the company as it will finally be able to move on from the cash-burning upstream assets in the UK which has always been a value destroyer."

Further, the brokerage mentioned that by 2030, the Indian capacities would make up for ~75% of the company's total capacities as compared to 62% currently. This showcases the company's focus on capturing the Indian steel demand splurge that is expected in the upcoming years.Notably, Tata Steel currently has a crude steelmaking capacity of ~21 mtpa in India making it the second largest steel manufacturer in the country. The company is scaling up to capitalize on the Indian growth opportunity. With the expansion getting completed from 3 mtpa to 8 mtpa, the Kalinganagar plant would be the largest 'Blast Furnace' in India in terms of area, as per the brokerage.

In addition to the blast furnace, it said, the plant site would also feature a 6 mtpa iron ore pellet plant as well a cold roll mill of 2.2 mtpa which would help the company maintain a better, more customer-oriented product mix. The company's aim is to complete the phase 2 expansion of the Kalinganagar plant by December 2024. With expansion on the raw material processing front, the facility will also become one of the lowest cost producers of steel globally.

On the valuation, the brokerage's note said, "We see Tata Steel to be rightly positioned in the Indian steel space, growing strongly with upcoming capacities and with relief on the European business. We roll over to FY26 estimates and maintain our ADD on the stock with a revised target price of Rs 153/share based on SOTP valuation on FY26E."

Taking into consideration the brokerage's target price, Tata Steel's share has a potential for nearly 14% upside.

On BSE, Tata Steel stock ended at Rs 133.50 apiece, up by 1.91% on Friday. Its market cap is over Rs 1.64 lakh crore. While the stock price is near its 52-week high of Rs 137.65 apiece.

Year-to-date, the stock has gained nearly 12% on BSE.

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