1:10 Split, Rs 58.2/ Dividend In 2 Years: BUY Tata's Steel Stock For 25% Potential Gains, Rs 190/TP

Tata Group-backed steelmaker, Tata Steel Ltd's share price has consolidated sharply in a month, with zero returns to investors. The stock price is currently at a little over Rs 150. Going ahead, metal companies' margins are likely to compress sequentially due to a decline in average prices, however, spot coking coal may offer relief. Amidst this, brokerage JM Financial has recommended BUY on Tata Steel for target price of Rs 190.

Tata Steel's share price ended last week on Friday at Rs 152.05 apiece, up by 1.64% on BSE with a market cap of Rs 1,89,810.75 crore. However, the stock's weekly performance is down by nearly 2%, while in a month, the stock dropped by 1.33%, hence zero returns during this period.

Following this, Tata Steel's YTD gains which were earlier in double-digit are squeezed to 8.7% upside.

Tata Steel stock will be in focus next week after the company successfully commissioned India's largest blast furnace at Kalinganagar, Odisha.

As per the official statement, with a total investment of Rs 27,000 crore, the Phase II expansion at Kalinganagar will take the total capacity at the site from 3 million tonnes per annum (MTPA) to 8 MTPA. The new facility was inaugurated by T. V. Narendran, CEO and Managing Director, of Tata Steel, in the presence of senior leaders of the Company.

Also, the new blast furnace will significantly boost the plant's overall production capabilities, allowing Tata Steel to meet the growing demands of various industries, including automotive, infrastructure, power, shipbuilding, and defence. It will also provide advantages in specific areas like oil & gas, lifting & excavation, and construction.

Further, it said, with the Phase II expansion, Odisha has emerged as the largest investment destination in India for Tata Steel, with a total cumulated investment of over Rs 100,000 crore in the last 10 years.

In its latest report, JM Financial said, "We estimate an EBITDA margin compression of ~INR1.5k+/ton QoQ. Volume growth in the seasonally weak quarter is likely to be muted. Working capital requirements is likely to offer some relief as steel / raw material prices trend down leading to better chances of net debt reduction. Spot spreads continue to hold higher currently than 2Q given the sharp correction in coking coal prices to USD180/t. China steel prices having corrected ~20% from recent peak has triggered a similar fall in raw material prices."

Amidst this, JM Financial has given a BUY rating on Tata Steel for a target price of Rs 190. Also, brokerage Antique Stock Broking has recommended BUY with a target price of Rs 180. Meanwhile, Motilal Oswal is neutral on the stock but has set a target price of Rs 180 as well.

On the Rs 190 target price, Tata Steel's share has the potential of nearly 25% upside ahead.

Earlier, in 2024, Tata Steel turned ex-dividend for Rs 3.60 per share dividend for FY24, which is the same as the dividend payout in FY23. The highest dividend payout by Tata Steel was in 2022 for Rs 51 per share. Notably, Tata Steel has also split for the first time in the ratio of 1:10 in 2022 as well. With effect from July 28, 2022, the face value of Tata Steel has been split from Rs 10 each to Rs 1 each. Overall, in 2 years, the company delivered dividend of Rs 58.2 per share.

Tata Steel Group is among the top global steel companies with an annual crude steel capacity of 35 million tonnes per annum. It is one of the world's most geographically diversified steel producers, with operations and commercial presence across the world. The group recorded a consolidated turnover of around US$27.7 billion in the financial year ending March 31, 2024.