Accumulate Tata Steel target of Rs 161 Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Steel

Tata Steel (TATA) delivered better-than-expected cons operating performance on the back of sturdy India (TSI) EBITDA. TSI delivered strong 6% YoY volume growth amid a seasonally weak quarter. Average NSR fell 5% QoQ due to weak steel pricing. Excluding Rs4bn one off in other expenses, EBITDA/t at Rs12,176 was better than PLe. TSE EBITDA loss widened QoQ to USD75/t due to subdued demand dynamics and stock build-up at TSUK. Going forward, fixed cost at TSUK is expected to decline by GBP100/t over the next 2 quarters, and TSN/TSI volume growth would improve as both furnaces are being ramped up. Recently commissioned KPO-II furnace is being ramped up well; it is expected to touch full utilization by Q4F25 from current ~50%. TSI expects incremental ~1.1mt/3.5mt/5mt in FY25/26/27 from KPO-II and savings of Rs3k-4k/t on full ramp-up. As only 20% of KPO capex is pending to be spent and new projects are in the approval stage, capex intensity would be lower than in the past 2 years, and the mgmt would focus on deleveraging plans. As part of the next phase of capacity expansion in India, work has started at Ludhiana 1mtpa EAF and 4mtpa NINL expansion. We cut FY26E/27E EBITDA estimates by 6% each considering lower steel pricing.

Outlook

We expect EBITDA CAGR of 30% over FY24-27E on the back of KPO volume ramp-up and TSE turnaround. At CMP, the stock is trading at 6.4x/5.3x EV of FY26E/FY27E EBITDA. We maintain ‘Accumulate’ rating with revised TP of Rs161 (earlier Rs181) valuing at 6x EV of Sep’26E TSI EBITDA.