1:10 Stock Split, 2.53% Yield: Tata Steel Share Gives Multi-Fold Returns In 2 Years: Should You Buy More?

Tata Group-backed flagship steelmaker, Tata Steel has been in focus amidst its UK business restructuring. Brokerages are optimistic about this Tata stock owing to its growing Indian footprint, as UK asset restructuring progresses and KPO-II expansion nears. Tata Steel's six-monthly gains are over 22% on BSE, but did you know this steel giant has given multifold returns in less than two years? Tata Steel shares have not only increased the number of shares for investors by 10 times, but their investment of Rs 1 lakh will also see a nearly 18-fold jump.

On February 27, Tata Steel's share gained by 2.3% to hit an intraday high of Rs 145.85 apiece, which was near its 52-week high of Rs 147.35 apiece on BSE. Currently, Tata Steel's market cap is over Rs 1.79 lakh crore.

Tata Steel Stock Split:

The first and only stock split that Tata Steel has carried so far is of a 1:10 ratio in July 2022. Tata Steel has been trading at a face value of Rs 1 since July 28, 2022. Under the 1:10 ratio, Tata Steel shares having a face value of Rs 10 each were trimmed into Rs 1 each. The eligible shareholders for the stock split were those investors whose names appeared in the registrar's books as of July 29, 2022.

Since 2022 to date, the lowest level of Tata Steel is Rs 82.71 apiece witnessed on June 23, 2022, which is nearly a month ago ex-split. So if an investor invested Rs 1 lakh in Tata Steel on that day, they will receive up to 1,209 equity shares.

If the investor continues to hold Tata Steel shares as of July 29, 2022, their shareholding will increase to 12,090 equity shares (1209 x 10). Now since Tata Steel is trading on Rs 1 face value, the 12,090 equity shares will shoot up to Rs 12,13,231.5 corpus on July 28, 2022, where the share price was available at Rs 100.35 apiece.

And if investors continued to stay in Tata Steel shares up till now, without modifying their portfolio, then their investment is now valued at Rs 17,63,326.5, that's nearly 18-fold returns in less than two years.

From July 28, 2022, to date, Tata Steel shares have gained by over 45.3% on BSE. While from the lowest price level between 2022 to February 27, 2024, Tata Steel shares have zoomed by 76.33%. These performances are calculated after the price is adjusted to the stock split ratio. Before the stock split, Tata Steel shares were valued between Rs 900 to Rs 1,000.

Apart from this, Tata Steel is among the top dividend-paying metal stocks. The company has delivered up to 29 dividends since May 2001. At the latest, the company paid up to Rs 3.60 per share dividends in 2023. At the current market price, Tata Steel's dividend yield is at 2.51%. Tata Steel had once declared bonus issues of 1:2 ratio in August 2004.

Should You Buy Tata Steel Shares?

Axis Securities is the latest to recommend buy on Tata Steel's share price. It said, "Tata Steel's consolidated revenue (down 3%/1% YoY/QoQ) missed consensus and our estimate by 4%. However, Consolidated EBITDA at Rs 6,334 Cr was a significant beat (15% beat against consensus), led by higher EBITDA/t in India. EBITDA/t in India stood
significantly ahead of our estimate at Rs 16,903/t (up 63%/26% YoY/QoQ), a 15% beat, led by higher sales realisation on higher volumes and lower consumption costs. European EBITDA/t loss stood in line at $178/t, which expanded from a loss of $155/t in Q2FY24 and $95/t in Q3FY23."

Axis Securities further said, that with a growing Indian footprint where it has higher EBITDA/t, the long-term term-story is good. It recommended buying for a target price of Rs 150, as UK asset restructuring progresses and KPO-II expansion nears.

Meanwhile, earlier this month, Haitong International, a leading brokerage said, "Tata Steel is one of the largest steel producers in India with 19.6mn tons of crude steel capacity in FY23, with additional capacity of 5.75mn tons being added by FY26 to 27.25mn tons. The expansion and subsequent scale up, which we believe will be visible from FY26, will help it tap into the strong steel demand in India being led by both private and public capex."

Haitong added, "We build in 8% domestic volume CAGR for Tata Steel over FY23-26, against our India steel demand CAGR of 6.6%. The company's consolidated performance has historically been dragged by its UK business, however, the company's GBP1.25bn capex towards replacing its blast furnace with EAF will be a positive. We expect the company to expand its domestic EBITDA per ton to Rs15,235 by FY26 bringing it back to its FY23 levels driven by cost rationalisation and correction in raw material costs."

On the valuation, Haitong said, "With growth drivers in place, we initiate coverage on Tata Steel with an Outperform rating and a target price of Rs160 on SoTP-based valuation."

After its Q3 results, BOB CAPS said that factoring in guidance for a slower transition in the UK, "we lower our FY24/FY25 EBITDA estimates by 7.5%/6% but raise our FY26 forecast by 2.9%. We slightly increase our SOTP-based TP for TATA to Rs 155 from Rs 150 rolling forward to Jan'25 (from Nov'24), while maintaining our target FY26E EV/EBITDA multiple for India operations at 6x and European business at 5.5x and continuing to bake in an incremental fair value of Rs 6.1/sh for the proposed UK restructuring."

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.