Tata Steel share price: 3 Key reasons why Jefferies expects 19% upside

Stock Market Today: Tata Steel share price after declining more than 5% on Thursday post Q4 results a day earlier, rebounded around 1% on Friday, during morning trades. Analysts said that Tata steel Q4 Results performance was decent but the stock reacted to the decline in per tonne India profitability sequentially, thanks to decline in average selling prices. Overall result performance nevertheless was better than estimates.

Jefferies target price for Tata Steel share price at 195 indicates about 19% upside for Tata Steel share price currently at around 164.

Here are 3 key reasons why Jefferies expects 19% upside

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Weak Q4 but better than estimates-

Jefferies India Ltd in its report post Q4 results said that Tata Steel Q4 reported Earnings before interest tax depreciation and amortisation (Ebitda) at 6600.6 Crore, rose 5 sequentially (declined 9% YoY) and was 7% above Jefferies estimates. Standalone Ebitda per tonne fell 12% sequentially to ~Rs15085 pulled down by lower average selling prices. However, Tata Steel Europe Ebitda per tonne loss narrowed sharply from $191 in Q3 to $40 in 4Q. Also Q4 net debt was flattish

Good sales volume growth in India, improved profitability

Tata steel domestic sales at 5.41 million tonne (mt) grew more than 5% year-on-year  and 11% sequentially during the quarter ending March’2024. The strong domestic demand remains favorable. 

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The ramp-up of new 5 mtpa (million tonne per annum) capacity, according to Jefferies analysts, will propel a robust 11% CAGR (compound annual growth) in Tata Steel India’s steel volumes over FY24–26 . It is anticipated that volume growth will be higher in FY26 (up 16%) than in FY25 (up 7%). On the flip side although weak Asian steel prices and imports from China pose some risk to Indian steel prices, the positive nevertheless is that lower coking coal prices should provide a cushion to margins.  Tata Steel expects Q1 India realizations to rise by Rs350 a tonne and coal cost to fall by around $10 a tonne sequentially. Jefferies expects standalone Ebitda per tonne  of Rs15,000-16,000 in FY25-FY27 compared to 155085 in 4QFY24 (FY10-24 average also stood at close to Rs15000).

Better profitability expects for Tata Steel Europe: Due to blast furnace relining in the Netherlands (Tata Steel Netherland) and restructuring in the United Kingdom (Tata Steel UK), Tata Steel Europe experienced significant margin pressure in FY24.The completion of the Tata Steel Netherland furnace relining should assist increase margins. The UK’s two blast furnace closures in first Half FY25 should assist lower losses, but the margin will probably remain low due to shift to a new 3 mtpa Electric Arc Furnace.

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Jefferies assumes Tata Steel Europe Ebitda per tonne to improve from loss of $40 in 4QFY24 to break even in FY25 and $20 in FY26E 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions







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Published: 31 May 2024, 10:42 AM IST

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