360% Dividend Ahead: Tata Group Stock Is Pick of The Week Ahead of Record Date On 21st June; Buy For TP Rs 197

The steel behemoth Tata Steel, backed by the Tata Group, saw its shares open higher on Monday on the BSE at Rs 180.75 per share, up from the previous close of Rs 178.95. Following Tata Steel's announcement that it is going to fund the green steel transition in the UK and the Netherlands through a combination of internal funding with government backing, the TATA group is the center of attention. The UK government has awarded it a £0.5 billion grant (a non-binding agreement) for the 3 MTPA EAF transition, which will replace the 3.5 MTPA BF. Following the big deal, the brokerage firm Axis Securities has initiated a buy call on Tata Steel for a target price of Rs 197 featuring the stock as the pick of the week for the below pointed reasons.

Investment Rationale For Tata Steel According To Axis Securities

Costs to ease up in Europe in the next year: The UK business will close down its BF4 and BF5 by Jun/Sep'24 respectively and it will use HR coils (mainly from India and Netherlands) to feed downstream assets until the 3.0 MT EAF commissions by FY27. The UK business will become cash neutral in H2FY25 and it will turn EBITDA positive from FY26. Netherlands is expected to deliver a positive EBITDA/t and turn net cash flow positive from Q1FY25 as BF6 relining is complete.

Enhancing Indian footprint: In FY25, 1.7 MT of production is expected from the 5mtpa KPO Phase II expansion project. Total incremental sales volume on a consolidated basis in FY25 will be at 1.4MT, as the company will take down BF-G at Jamshedpur for relining, which will lead to a loss of volume. KPO-II EBITDA/t will be better than other Indian assets. Hence India's blended EBITDA/t will only accrue as KPO-II ramps up to a rated capacity of 5mtpa (expected by FY26).

Green Steel transition in Europe: With the CBAM (Carbon Border Adjustment Mechanism), steel exports to the UK and EU will become expensive in future. Hence the green steel transition in the UK and EU will be strategically important for Tata Steel. The company expects an ROCE of 12-15% across cycles from the EAF/DRI transition investments in the UK/Europe.

Tata Steel will fund the UK and Netherlands green steel transition through a combination of internal funding, project funding and government support. It has £0.5 Bn grant (non-binding agreement) from the UK government for its 3 MTPA EAF transition replacing the 3.5 MTPA BF. For the Netherlands BF-6 & 7 transition to the DRI route, the Dutch Parliament has given a mandate to the government to negotiate the terms of potential support towards a proposal for decarbonization in Tata Steel Nederland.

Tata Steel Share Price Target

"We recommend a BUY rating on the stock with a TP of Rs 197/share, implying an upside of 10% from the CMP," said Axis Securities in a note on the outlook of Tata Steel.

Tata Steel Upcoming Dividend

"We are pleased to inform you that the Board of Directors of the Company, at its meeting held on May 29, 2024, has recommended a dividend of Rs.3.60 each per Ordinary Equity Share of face value Re.1/- each (360%), for the Financial Year ended March 31, 2024. As you are aware, as per the provisions of the Income Tax Act, 1961 (Act), dividend paid or distributed by a Company shall be taxable at the hands of shareholders. Therefore, the Company is required to deduct tax at source (TDS) at the rates applicable on the amount distributed to the shareholders, if approved at the Annual General Meeting (AGM) of the Company scheduled to be held on Monday, July 15, 2024. The aforesaid dividend, once approved by the shareholders, will be paid on and from Friday, July 19, 2024," said Tata Steel in a regulatory filing.

Disclaimer

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