Accumulate Tata Steel; target of Rs 175: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Steel

Tata Steel’s (TATA) Q1FY25 cons. operating performance was better than PLe on account of sequential improvement at Tata Steel Europe (TSE) operations. TSE EBITDA loss narrowed further to USD28/t as Tata Steel Netherlands (TSN) delivered EBITDA profit of USD37/t on volume ramp-up post relining. TSUK is expected to become EBITDA positive from Q3FY25 post closure of BF #4 in Sep’24. KPO-II expansion at India (TSI) is progressing well with incremental 1.7mt volumes expected in FY25. For the next phase of capacity expansion in India, work has started at Ludhiana 1mtpa EAF and NINL 4mtpa expansion. Key parameters to watch are a) progress on negotiations at TSN/TSUK for green transition and b) ramp-up of KPO-II BF, which shall drive FY26E volume growth. We cut FY25E/26E EBITDA estimates by 3%-4% considering weak steel pricing. We expect EBITDA CAGR of 47% over FY24- 26E on the back of KPO volume ramp-up and TSE turnaround.

Outlook

At CMP, the stock is trading at 7.9x/5.6x EV of FY25E/FY26E EBITDA. We maintain ‘Accumulate’ rating with revised TP of Rs175 (earlier Rs186) valuing at 6x EV of Mar’26E TSI EBITDA.