Buy This Large Cap Tata Group Stock, Shares Can Surge 25%, Gave Over 150% Returns In 3 Yrs

Stock outlook & Returns

The current market price (CMP) of Tata Steel stock is Rs 101.60 apiece on NSE, trading 0.35% up as compared to its previous close of Rs 101.25 apiece. The stock hit its 52-week high at Rs 138.67 in April 2022, and the 52 week low at Rs 82.70 apiece in June 2022, respectively. It has a market cap of Rs 1,24,351 crore. 

 
Tata Steel shares in the past 1 week have fallen 2.3%, whereas, in the past 1 month, it has given 3.51% positive returns. The stock over the past 1 year has given 23.23% negative return. However, in 3 years, the stock has given a multibagger return of 154.82%. The stock over the past 5 years has given 43.6% positive returns.

Weak Q2

TATA's consolidated Q2FY23 EBITDA at Rs 58bn fell 60% QoQ and was 22% below consensus. EBITDA/t declined by 59% QoQ to Rs 8.7k/t in standalone operations and by 67% to US$ 120/t in Europe. Net debt rose 31% HoH to Rs 718bn.

Estimates cut

"We cut our FY23/FY24 EBITDA estimates by 31%/10% to reflect our outlook of margin compression in Europe in H2FY23, slower recovery in Indian operations to mid-cycle margin levels by FY24 and higher net debt. While we cut FY23/FY24 EBITDA/t by 37%/29% to US$ 129/US$ 72 for European operations, we broadly maintain our forecasts at Rs 15.4k/Rs 17.3k for India," the brokerage has said.

Near-term uncertainty...

With Chinese domestic prices declining through October and Indian steel at a 5-7% premium to landed prices, we now look for prices to stabilise over FY24 post the lunar holidays in China. European operations are also exposed to margin uncertainty with the reset of annual contracts ahead of CY23 and energy-related volatility through winter.

...discounted in stock price

"We estimate that TATA's stock price is currently discounting EBITDA/t of Rs 13.3-14.3k for standalone operations based on 5Y/10Y multiples. This is well below the mid-cycle margin of Rs 17.3k/t that we expect TATA to deliver from its integrated operations, assuming China gross margins settle at the historical average of US$ 250/t," the brokerage has said.

Look to medium-term growth, maintains buy

The brokerage said, "We believe TATA is well positioned to weather this downturn and deliver on its earnings-accretive projects, namely the 6mpta pellet plant, 2mtpa cold rolling mill, 5mtpa TSK expansion and 5mtpa NINL expansion over FY23-FY26.

The brokerage added, "We lower our Target Price to Rs 125 from Rs 140 as we bake in uncertainty in European operations by scaling back estimates, while maintaining our target FY24E EV/EBITDA multiple at 5.5x which reflects global uncertainty. Given 24% upside potential, we maintain BUY."

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets. 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 making any investment decision.