Tata Steel Ltd. share price target

Tata Steel (TSL) has announced deep restructuring of its UK operations (TSUK) with twin objectives of business continuity and sustainability. Key points: 1) Existing blast furnaces to be replaced by 3mtpa Electric Arc Furnace (EAF); 2) 40% of GBP 1.25bn investment to be funded through the grant by the UK government; 3) cost differential of GBP 150-170/te compared to current operations.

Q1 EBITDA broadly in line as standalone operations continued to clock a high EBITDA margin of Rs 14k/t

Tata Steel’s (TSL) Q1FY24 EBITDA of INR 51.7bn (down 65% YoY) met consensus estimates on the back of higher realisation in domestic operations. Key points: 1) standalone EBITDA/te at INR 14,528 was ahead of our estimates owing to existing contracts and better export realisations; 2) EBITDA/te loss at Tata Steel Europe (TSE) at USD 96 was broadly in line; 3) working capital build-up of INR 25bn QoQ led to net debt increase of INR 35.8bn QoQ; and 4) capex was at INR 41bn as KPO-II expansion stays on course.

We maintain a HOLD rating on the stock on account of overhang of the restructuring of UK assets.