Tata Group-backed steelmaker, Tata Steel has witnessed a sharp correction in one month, falling by nearly 11% on BSE. While Tata Steel's weekly performance is also down by 8.5%. This brings a buy-on-dips opportunity to Tata Steel. Brokerages have recommended BUY for a target price ranging from Rs 175 to Rs 190. At the latest, Tata Steel has made a merger update related to Indian Steel & Wire Products.
Tata Steel Share Price:
Tata Steel's share price on August 7 ended at Rs 153.85 apiece, up by 2.40% with a market cap of Rs 1,92,057.77 crore. The latest boost in Tata Steel comes ahead of its merger update. Accordingly, Tata Steel's share price will be in focus on August 8.
The stock's 52-week high and low are at Rs 184.60 apiece and Rs 114.25 apiece respectively. Tata Steel's share price has been on a bearish trend after its Q1 results. On a week-on-week basis, the stock is down by 8.5%, while in a month, the downfall is about 10.71%. However, year-to-date, the stock is still up by 10%, but gains have been squeezed in due to the latest correction.
Tata Steel Merger Update:
As per the regulatory filing, after market hours of August 7, Tata Steel informed that the NCLT Mumbai bench has approved the scheme of amalgamation with Indian Steel & Wire Products.
The approval is a step closer for Tata Steel to consolidate its metal and resources business into one single entity. In 2022, Tata Group commenced the process of merging six subsidiaries into Tata Steel.
These included three listed companies such as Tata Metaliks, Tata Steel Long Products and The Tinplate Company of India. While Indian Steel & Wire Products is part of the other three unlisted companies including Tata Steel Mining and S&T Mining Company.
As per the latest document, the amalgamation will ensure the creation of a combined entity, hosting value-added products, leading to 'One-Tata Steel' to customers which will improve shareholders' value of the merged entity. Also, such restructuring will lead to simplification of group structure by eliminating multiple companies in similar businesses.
Indian Steel & Wire Products is an unlisted subsidiary of Tata Steel, engaged in products such as rods, TMT rebars, wires and wires products among others.
Tata Steel Corporate Actions:
Tata Steel turned ex-dividend recently for final final dividend of Rs 3.60 per share for FY24, the same as the payout in FY23.
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 1:10.
Tata Steel Results:
In Q1FY25, the company's consolidated revenue were at Rs 54,771 crores and EBITDA was Rs 6,822 crores with an EBITDA margin of around 12.5%. The company has spent Rs 3,777 crores on capital expenditure during the quarter. The phased commissioning of the 5 MTPA expansion at Kalinganagar is progressing well towards blast furnace start-up in September 2024.
PAT is at Rs 919 crore in the first quarter of FY25. On geographical basis, UK revenues were £646 million and EBITDA loss stood at £91 million. Liquid steel production as well as deliveries were 0.68 million tons.
While Netherlands revenues were £1,344 million and EBITDA for the quarter was £43 million. On per ton basis, EBITDA improved by £48 per ton on QoQ basis. Liquid steel production was 1.69 mn tons and deliveries were at 1.47 mn tons, up QoQ and YoY basis.
In India, the company's revenues were Rs 33,194 crores for the quarter and EBITDA was Rs 7,029 crores, which translates into an EBITDA margin of 21%
BUY/Accumulate Tata Steel Share:
JM Financial On Tata Steel Share:
The brokerage cited key takeaways from Tata Steel's earnings. These are - 1) Expected coking coal price movement in 2Q (a) India: (-) USD15/t (b) Netherlands: (-) USD 26/t iron ore: (-) USD17/t in Netherlands 2) Expected net realisation movement in 2Q: (a) India (-) INR 1.5k/t (b) UK: flat (c) Netherlands (-) £60/t 3) post the recent SC judgement on State's power to levy taxes on minerals, company continues to report contingent liability of INR170bn 4) the company endeavors to cut UK losses by half in FY25E - EBITDA positive by 3Q 5) Kalinganagar phased commissioning started with additional 0.7 mt volume expected in FY25E 6) Management endeavour is to make the transition to EAF within 4 years. The commissioning of the phased expansion of 5MNTPA at Kalinganagar remains on track with the blast furnace coming in Sept'24. Further company shutdown its blast furnace 5 in June, and the blast furnace 4 closure is scheduled for Sept'24.
Hence, the brokerage recommends BUY for a target price of Rs 190.
Motilal Oswal On Tata Steel:
In Motilal's view, the Indian business has posted a decent performance, and domestic demand is expected to continue its momentum, while TATA's European operating losses have been reducing. Management guided its UK operations to start reporting positive EBITDA from 3QFY25, turning the overall Europe operation EBITDA positive. This would be mainly due to better volumes and muted input costs.
Also, TATA has laid out the road map to scale domestic operations further, under the Phase-III expansion and will take the total capacity to 40mt.
On the valuation, Motilal said, "While there are near term challenges related to high imports and lower realizations, the long term outlook remains strong. We have largely retained our estimates for FY25 and FY26. TATA is trading at 7x FY26E EV/EBITDA and 2.0x FY26E P/B. Reiterate Neutral with an SOTP-based TP of INR180"
Prabhudas Lilladher on Tata Steel:
Tushar Chaudhari, Research Analyst - Institutional Equities at Prabhudas Lilladher said, "For the next phase of capacity expansion in India, work has started at Ludhiana 1mtpa EAF and NINL 4mtpa expansion. Key parameters to watch are a) progress on negotiations at TSN/TSUK for green transition and b) ramp-up of KPO-II BF, which shall drive FY26E volume growth. We cut FY25E/26E EBITDA estimates by 3%-4% considering weak steel pricing. We expect EBITDA CAGR of 47% over FY2426E on the back of KPO volume ramp-up and TSE turnaround. At CMP, the stock is trading at 7.9x/5.6x EV of FY25E/FY26E EBITDA. We maintain 'Accumulate' rating with revised TP of Rs175 (earlier Rs186) valuing at 6x EV of Mar'26E TSI EBITDA."
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.
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.
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