1:10 Split, 1:2 Bonus, 360% Dividend: Tata's Steel Stock Advised To ACCUMULATE As Prices Fall; Rs 186/TP By PL

Tata Group-backed Tata Steel shares are recommended to Accumulate as the domestic HRC prices continue to fall. This downward trend in steel prices is likely to continue. Amidst this, brokerage Prabhudas Lilladher has advised Accumulate Tata Steel's stock price for a target price of Rs 175. One of the top-performing metal stocks with double-digit gains in 2024 so far, Tata Steel is trading around Rs 168 levels on BSE.

As per Prabhudas Lilldher, Indian benchmark HRC prices declined by another Rs200/t WoW to Rs 53,000/t. Spot spreads declined 2% WoW to Rs23,978/t as coking coal prices inched up again to USD269/t (CNF Paradip). Odisha 63% grade lumps remained flat WoW at Rs6500/t.

The brokerage is expecting domestic steel prices to decline further as global pricing is on a downtick amidst a seasonally weak quarter.

In such a scenario, Prabhudas Lilladher has recommended Accumulate on Tata Steel stock price with a short-term target price of Rs 186. This signals over 10% potential upside in Tata Steel from the current market price.

Prabhudas estimates Tata Steel's EBITDA to jump to Rs 366 billion by FY25E, and to Rs 496 billion by FY26E. Also, its EPS is expected to surge to Rs 22.5 per share by FY25E and to Rs 22.5 per share by FY26E.

Currently, Tata Steel's share price stands at Rs 168.70 apiece on BSE with a market cap of Rs 2,10,595.68 crore. The stock's 52-week high and low are at Rs 184.60 apiece and Rs 114.25 apiece respectively. This also indicates that Prabhudas' Rs 186 target price will be Tata Steel's new high if the level is achieved. YTD, the stock surged by nearly 21% on BSE.

Some of the key positive fundamentals of Tata Steel are that the mutual fund holding surged by 0.27% in Q1FY25 to 10.1%, while promoter pledges are zero in the company. Also, its debt-to-equity ratio is at 0.89 which is less than and that is healthy since it generally means that the company funds its assets via equity.

However, a few of the drawbacks for the stock, as per Trendlyne data is that Tata Steel stock rose 43.99% and underperformed its sector by 45.14% in the past year. Also, its Return on Equity(ROE) for the last financial year was -4.82%, less than 10%, indicating an inefficient use of shareholder's capital to generate profit, while Promoter Share Holding decreased by 0.51% in the most recent quarter to 33.19%.

Last month, Tata Steel turned ex-dividend on June 21, which was also the record date for the final dividend of Rs 3.60 per share for FY24, the same as the payout in FY23. The dividend payment date is fixed on and from July 19, 2024.

Since its bonus issue, Tata Steel has delivered a huge Rs 299 per share dividend. However, its highest dividend payout was Rs 51 per share in 2022, and cumulatively it paid Rs 63.75 per share in that year.

Meanwhile, Tata Steel has issued 1 free bonus share on the existing 1 equity share, taking the ratio to 1:1. Additionally, Tata Steel stock has also turned ex-split in 2022 in the ratio of 10:1.

In Q1FY25, Tata Steel India's crude steel production stood at 5.25 million tons and was up 5% on a YoY basis. Production was lower QoQ due to planned maintenance shutdowns. India deliveries stood at 4.94 million tons and were the 'best 1Q' sales. Deliveries were up 3% on a YoY basis driven by a rise in domestic deliveries.

While in the quarter, Tata Steel Netherlands liquid steel production stood at 1.72 million tons and was up on YoY as well as QoQ basis upon return to normal operating levels. Deliveries were at 1.52 million tons, up 11% YoY and 6% QoQ aided by improved production.

Also, Q1FY25, Tata Steel UK liquid steel production was 0.68 million tons while deliveries stood at 0.69 million tons. Operations have been ceased at Blast Furnace 5 at Port Talbot where the last liquid iron was produced on 4th July, and it is being safely decommissioned.

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.