Buy Tata Steel For Potential 19% Gain In 12 Months, EBITDA Up 294% YoY, 2 Years Return Is 159%

ICICI Direct has given buy rating to the stock of Tata Steel for a potential gain of 19%. The market capitalization is 1,36,527.42 crore. Currently, the stock is trading at a discount of 27% from its highs.

1. Tata Steel Ltd Stock Outlook

The current market price of the stock is Rs 111.80 apiece with a 52-week high at Rs 153 apiece and 52-week low at Rs 82.71. According to ICICI Direct, if investors buy the stock now it has the potential to reach the specified target price of Rs 130 apiece with in a target period of 12 months.

Current market price	Rs 111.80
Target Price	Rs 130
Potential Gain	19%
2 Year Return	159%
3 Year Return	208%
5 Year Return	87%

2. Softening Cooking Coal Prices Augurs Well

Over the last one-month (i.e. from July first week to August first week) domestic hot rolled coil (HRC) prices have been range bound and hovered at approximately Rs 57500-59500/tonne. In the backdrop of range bound domestic steel prices (HRC), the recent sharp fall in coking coal prices augurs well for Indian steel players. Over the last couple of months coking coal prices have halved from approximately US$415/tonne in June 2022 to approximately US$208/tonne currently in August 2022. The benefit of lower coking coal costs is likely to feed through in the cost base by September 2022 for Tata Steel Indian operations and by Q3FY22 for Tata Steel European operations.

3. Tata Steel Ltd Key Highlights

During Q1FY23, Tata Steel Indian operations reported sales volume of 4.06 million tonnes. For Q2FY23E, sequentially Tata Steel Indian operations sales volumes is likely to be 0.5 million tonnes (MT) higher compared to Q1FY23. During Q1FY23, Tata Steel's European operations achieved highest ever quarterly EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization ) of Rs 6037 crore (up 294% YoY and 39% QoQ). European operations reported a strong beat on the EBITDA front aided by long term contracts and product mix. For Q1FY23, Tata Steel European operations reported EBITDA/tonne of US$365/tonne (US$89/tonne in Q1FY22 and US$241/tonne in Q4FY22). Tata Steel Long Products, a subsidiary of Tata Steel, completed the acquisition of Neelachal Ispat Nigam (NINL) on July 4, 2022.

4. Key Triggers For Future Price Performance

With respect to NINL, Tata Steel plans to restart NINL's blast furnace in next three months & ramp up capacity to approximately 80-100 KT/month run-rate by Mar'23. Tata Steel remains committed to its annual deleveraging target of US$1 billion in line with its capital allocation strategy to reduce debt.

5. Tata Steel Valuation

According to ICICI Direct, "TSL's share price has given a return of approximately 159% over the last two years (from approximately Rs 42 in August 2020 to approximately Rs 109 levels in August 2022). We maintain our BUY rating on the stock." We value Tata Steel at Rs 130, based on SoTP (sum-of-the-parts valuation) valuation.

6. About Tata Steel Ltd

Tata Steel group is among the top global steel companies with an annual steel production capacity of approximately 34 million tonnes per annum (MTPA). Tata Steel (TSL) is one of the world's most geographically diversified steel producers, with operations and commercial presence across the world. Since 2016, TSL has been consistently ranked among the top 10 steel companies in the DJSI Corporate Sustainability Assessment.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.