The shares of steel giant Tata Steel Limited declined more than 4.25% in the first half of the trading session on Wednesday and hit their new 52-week low of ₹ 842 per share. The steel rally has seemingly come to an end as the share price of India’s top steelmaker has declined more than 45% from its 52-week high of ₹ 1,534 it hit in August last year.

The shares of metal companies have been under stress from slowdown and discontinuous lockdowns in China, the world’s largest metal consumer. Further, interest rate hikes announced by the central banks across various countries to curb inflation and anticipated economic slowdown are also reasons which have contributed to decreased demand for the metal stocks.

Further, the government’s decision to increase export duty on all grades of iron ore, pellets and non-alloy steel products came as a surprise to the industry.

Motilal Oswal Financial Services commented, “Meanwhile, demand and consequently pricing is seasonally weak at present. The government’s policy of imposition of export duty on iron ore, pellets, and certain categories of steel will further depress domestic prices. Unless there is a meaningful correction in coking coal prices, margin can remain subdued in the next six months.” 

It must be noted that Tata Steel closed its last financial year with an astonishing profit of ₹ 41,749 crores aided by a sharp rally in the alloy prices. The record income enabled the steelmaker to declare the highest ever dividend of ₹ 51 per equity share. The company decreased its net debt to ₹ 51,049 crores in FY22. The management is hopeful for further reduction in the debt levels even after the purchase of the Ispat Nigam. 

Analysts at Citi have maintained a buy rating on the stock with a revised target price of ₹ 1,085 per share, signalling an upside of 28% from its trading price of ₹ 849 per share as of 12:25 IST.

Motilal Oswal Financial Services is of the opinion that the cost structure of the steelmaker will only benefit when there is a reduction in the prices of coking coal. The brokerage expects a contraction in the EBITDA to the tune of 66% in the first half of the fiscal year on account of lower alloy steel prices, decreased demand, higher coking coal prices and increased base effect. Its price target of ₹ 965 indicates an upside of 14%.

In the annual report for the fiscal year 2021-22, N Chandrasekaran, the chairman of Tata Steel communicated that the company has plans to diversify beyond alloy manufacturing and enter three verticals: medical materials & devices, graphene and composites. This will make Tata Steel a knowledge and intellectual property-intensive and non-cyclical materials business.

Written by Vikalp Mishra

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