Tata Steel Ltd. share price target

We maintain our BUY rating on the stock post the removal of the overhang of the UK business restructuring.

Decarbonisation of UK operation can sharpen competitiveness and add potential value of Rs 6-7/sh for TATA

We revise our rating on the stock from HOLD to BUY.

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.