Amid concerns over global economic uncertainty, operational aspects, and rising steel imports from China, analysts slashed their ratings and target prices for Tata Steel.
The Tata group-led firm was one of the most downgraded stocks on the Street over the past year, past quarter and past month.
From 26 'buy' calls last year, only 14 brokerages have maintained their bullish rating on the player. Tata Steel went from four 'hold' and three 'sell' ratings to nine 'hold' and eight 'sell' calls in a year.
According to experts, the onset of monsoon across the country will limit and restrict construction-led activity, impacting the demand for steel and prevent any major upward movement in prices during the near-term.
"Additionally, flat steel prices may face pressure as imports of flat steel are likely to increase. On the cost front, rising coking coal prices are likely to drag margin of steel firms in the medium term," said Elara Securities.
China imports rise
On the domestic front, steel spreads are falling as Chinese steel production rises. The exports from China are depressing the global prices. Steel exports from China have fallen by $25/tonne over the past quarter.
"In the foreseeable future, the steel market will likely experience sustained downward pressure, resulting in no improvement in steel spreads," per InCred Equities. The brokerage has a 'sell' rating on Tata Steel.
On the other hand, Jefferies upheld its "buy" ratings on Tata Steel and the target price has been increased to Rs 200. Jefferies was positive on the notable rise in manufacturing activities reported by China and the United States. With these two countries being major consumers of metal, an increase in manufacturing activity would translate to a heightened demand for metal.
Also Read | UK's Unite union suspends strike at Tata Steel plant
UK plant closure
Tata Steel plans to invest $2.1 billion into its Singapore arm will help repay the existing debt of its offshore entities and support rejig costs in the UK.
Morgan Stanley noted that Tata Steel's heavy assets in the UK are close to shutting down. This could mean a change in the company's strategy, possibly leading to reallocating resources or new investments.
The closures were announced in January as part of the Indian company's plan to turn around its loss-making UK business by switching to lower carbon electric arc furnaces, a proposal backed by 500 million pounds ($632 million) of government money.
The steelmaker has begun preparations to place equipment orders for the electric arc furnace by September 2024, begin enabling and preparatory works at the site by December 2024, and based on current permitting timelines, begin construction on the project by August 2025.
However, the plant closure plans have been met with controversy as workers threatened to go on a strike due to the potential job losses.
Profit falls
On May 29, Tata Steel reported 64 percent fall in fourth quarter profit (attributable to owners) at Rs 611.48 crore, amid lower steel realisations and poor performance in the steelmaker's international operations for the quarter ended March. The company had reported net profit of Rs 1,704.86 crore in the same quarter a year ago.
The consolidated revenue from operations for the quarter fell 6.7 percent to Rs 58,687.3 crore as compared to Rs 62,961.5 crore recorded in the year-ago period.
The loss was significantly higher than anticipated, leading to concerns among analysts about the company's operational challenges and prompting downward revisions.
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