Accumulate Tata Steel; target of Rs 520: PLilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher`s research report on Tata Steel“TATA steel (TATA) announced the signing of MoU with Klesch Group to undertake detailed due diligence and negotiations for the potential sale of its long products Europe (LPE) business and associated distribution activities. With crude steel production of 3.2m tonnes and deliveries of 2.8m tonnes, LPE's capacity utilisation was restricted to ~70% for past couple of years due to weak demand from the construction sector as against strip product's utilisation of ~95%. We believe that this deal would add in the range of Rs20/share in form of lower interest cost and capex; assuming consideration at US$1bn for the transaction.” “Post this deal, entire of Tata steel Europe's (TSE) volume would come from Strip products which has better demand outlook compared to Longs. These operations were plagued by high employee cost, low scale and high overhead cost despite series of cost reduction initiatives undertaken by the management over past six years. About 6,500 people are employed at LPE and its distribution facilities which is way ahead of global benchmarks. Given the sluggish outlook for Longs, company took an impairment of £700m in FY13. Book value of the division stands at £350m. Stock has fallen ~16% in last couple of months for host of concerns like sharp cut in global iron ore prices, regulatory issues on renewal of mines in India and sluggish macro environment in Europe. We believe that correction provides an attractive opportunity to enter in the stock given the bottoming of global iron ore prices, strong transition of European operations and likely loosening of irrational stand undertaken by state governments to halt the renewal process. Hence, we upgrade the stock from Reduce to Accumulate with TP of Rs520, EV/EBITDA of 6x FY16E,”says Prabhudas Lilladher research report.

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