Accumulate Tata Steel; target of Rs 145: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Steel

Tata Steel (TATA) delivered largely inline cons operating performance led by strong TSI. TSI volumes grew 8.4% YoY aided by improving domestic demand while NSR declined 2.5% QoQ amidst falling HRC prices. Higher export volumes during Q3 negated sharp fall in steel prices to certain extent. Soft coking coal prices and provision write back in other expenses (worth Rs14.1bn) boosted reported EBITDA during the quarter. With commissioning of annealing line and ramp up of blast furnace, product mix is expected to improve going forward. Management expects TSI NSR to remain flattish for Q4FY25 as global HRC pricing is expected to remain weak till Chinese exports momentum continues. TSE performance has improved QoQ despite falling steel prices on account of higher TSN volumes and fixed cost reduction at TSUK; however TSUK breakeven is expected by Q2FY26 only. The ongoing fixed cost reduction program at TSUK (targeting cost reduction of GBP 100-150/t) and planned restructuring activities at TSN, will further support performance in the next few quarters.

Outlook

We cut FY26E/27E EBITDA estimates by ~2% each considering delays in TSUK breakeven. We expect EBITDA CAGR of 26% over FY24-27E on the back of KPO volume ramp-up and TSE turnaround. At CMP, the stock is trading at 6.1x/5.2x EV of FY26E/FY27E EBITDA. We maintain ‘Accumulate’ rating with revised TP of Rs145 (earlier Rs141) valuing at 6x EV of Sep’26E TSI EBITDA.