10:1 Split, 360% Dividend Ahead: Tata's Steel Stock To BUY/ADD/SELL After €3 Bn Deal Update; 28% Up YTD

Tata Group-backed steel giant, Tata Steel stock ended higher by 5.2% during the trading week from June 3-7. The stock also touched a new 52-week high of Rs 179.65 apiece. YTD, the stock is up by 28%. Tata Steel stock is in focus after the company confirmed the Dutch government's support in cleaning up its Europe plant. Brokerages have made their recommendations on this Tata stock accordingly.

On June 6, the company clarified in a news article titled 'Dutch May Pay as Much as €3 Billion to Clean Up Tata Steel Plant."

In FY24, the company disclosed its discussion with the Dutch government on the proposed decarbonization roadmap.

It clarified further, saying, "The Dutch Parliament, in March 2024 formally gave a mandate to the Government to negotiate the terms of potential support towards a proposal for decarbonization in Tata Steel Nederland. Subsequently, the Dutch Government has formulated a detailed framework of diligence, analysis, discussions and negotiations with Tata Steel which will run over several months before potentially culminating in an agreed set of terms."

Also, the company added that these terms will then require approval from the Netherlands Parliament as well as the Board of Tata Steel. Hence, Tata Steel mentioned that it may be premature to draw any conclusions at this time and hence the Company is not in a position to comment any further on the news reports appearing in the mainstream media.

Should You BUY OR SELL Tata Steel Stock?

BOB Capital Markets:

The stock price has run up 42% from the lows in Nov'23 with progress on the plan for the UK plant transition to more sustainable operations. The stock has been trading at more than 1 standard deviation above historical mean/median valuation over the past 10 years. While we remain confident of TATA's ability to deliver earnings-accretive growth, we consider risk-reward unfavourable at the current valuation. Downgrade our rating to HOLD from BUY.

Raising 1Y fwd EV/EBITDA target multiple of India operations to 6.5x, above the mid-cycle multiple of 6x, on the back of likely entry into the global recovery phase in CY24, we raise our TP to Rs 170 (from Rs 155). We retain the multiple for Europe at 5.5x as we separately account for the benefit of the proposed UK restructuring at Rs6/sh.

Centrum:

Tata Steel Europe is going through a transition by shutting current BF capacities and setting a new EAF capacity of 3mtpa by FY27 where cost saving is expected to be ~USD150/t and turn cash positive operationally. In the Netherlands, the religning of the plant is completed and has been operations since Feb-24. For FY25, it is expected to achieve 75% CU and will be EBITDA positive. While UK will close its two BFs by Sept-24 and start EAF construction, keeping downstream business operational. While India has added 5mtpa of flat steel capacity at Kalinganagar and another 0.75mtpa EAF capacity in FY26 driving volume growth and profitability. It aims to expand to 38-40mtpa capacity by 2030. TATA guided to bring Net Debt/EBITDA below 2.5x in FY25. We recommend an ADD rating with a target price of Rs168.

Axis Securities:

This brokerage has recommended BUY. It said, "FY25 capex guidance is Rs 16,000 Cr (75% of it will be spent in India). The company's target is to achieve Net Debt to EBITDA

Adding it said, "We use SoTP and ascribe a 1-year Fwd EV/EBITDA multiple of 7.0x
(6.0x earlier), 5.0x, and 4.0x to India standalone, other operations, and Europe respectively on Mar'26 EBITDA (Unchanged) to arrive at our Mar'25 forward TP of Rs 187/share (from Rs 150/share). We revise our EBITDA for FY25-26E on lower coking coal consumption costs. The TP implies a 14%
upside from the CMP. We maintain our BUY recommendation on the stock."

Tata Steel Corporate Actions:

The steel giant has recommended a final dividend of Rs 3.60 per share for FY24, the same as the payout in FY23. For the FY24 dividend, the company fixed Friday, June 21, 2024, as the record date for determining the Members entitled to receive the same. 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.