The shares of one of the leading steel manufacturer received a buy call from the international brokerage for an upside of 36%.
Tata Steel Ltd is a well-diversified company. The company is present throughout the steel manufacturing value chain, from mining and processing iron ore and coal to producing and distributing finished products, with an annual crude steel production capacity of 35 MTPA.
Between Q4 FY23 and Q4 FY24, the company’s revenue declined by 5.8%, decreasing from ₹2,43,353 crores to ₹2,29,171 crores.
This period also saw a shift from a net profit of ₹8,075 crores to a net loss of ₹4,910 crores, largely due to operational challenges in its European subsidiaries, elevated raw material costs, reduced revenues, and significant impairment charges related to restructuring efforts.
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Despite these challenges, Tata Steel Ltd shares have risen by 3% over the past six months and 26% over the past 12 months.
International brokerage, Jefferies has initiated a buy call on Tata Steel with a target of ₹200 per share, implying an upside potential of nearly 36 percent from the current market price.
The brokerage reported that Tata Steel intends to infuse $2.1 billion into an overseas holding company to refinance existing debt at its offshore entities and to cover restructuring costs in the UK.
Jefferies analysts predict that Tata Steel India’s expansion of 5 million tonnes per annum (mtpa) capacity will drive a solid 11% compound annual growth rate (CAGR) in steel volumes from FY24 to FY26.
Brokerage forecasts a stronger volume increase in FY26 (16%) compared to FY25 (7%). Despite potential risks from weak Asian steel prices and imports from China, lower coking coal prices are expected to support margins.
Jefferies projects standalone EBITDA per tonne to range from ₹15,000 to ₹16,000 in FY25-FY27, up from ₹15,085 in 4QFY24, with the average for FY10-24 also close to ₹15,000.
Additionally, Jefferies anticipates that Tata Steel Europe’s EBITDA per tonne will improve from a loss of $40 in 4QFY24 to breakeven in FY25 and $20 in FY26.
Tata Steel’s management has set an ambitious goal to double its production capacity to 40 million tonnes per annum (MnTPA) by 2030. As part of this expansion, the company recently announced a £1.25 billion ($1.6 billion) investment in a new electric arc furnace (EAF) at its Port Talbot plant in the UK.
Recently, the company board also approved the issuance of additional debt securities in one or more tranches to raise to Rs 3,000 crore via non-convertible debentures (NCDs) on a private placement basis.
On Friday, the tata steel shares were trading at ₹147 per share, up 0.53 percent from the previous close price. The company has a market capitalization of ₹1,83,445 crores.
Written by Omkar Chitnis
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