Buy Tata Steel; target of Rs 176 Prabhudas Lilladher

Prabhudas Lilladher is bullish on Tata Steel has recommended buy rating on the stock with a target price of Rs 176 in its research report dated May 14, 2025.

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May 15, 2025 / 15:06 IST

Buy

26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Tata Steel

Tata Steel (TATA) delivered strong sequential cons operating performance aided by inline standalone and improved other subsidiaries. TSI EBITDA declined 13% YoY on sharp 9% YoY decline in NSR and muted 3.3% YoY volume growth. European subs continued to make EBITDA losses led by UK. Domestic prices have inched up post February in anticipation of safeguard duty and global prices also improved post US tariff talks. Going forward, higher steel prices and benign coking coal consumption cost is expected to uplift Q1FY26 performance. FY26 would witness incremental 1.5mt volumes from TSI, timely breakeven at TSUK and improved TSN performance. Mgmt. has reiterated its cost transformation journey across locations targeting cost savings of Rs115bn for FY26. This includes a) ongoing fixed cost reduction program at TSUK (GBP 100-150/t), b) recently announced restructuring activities at TSN (GBP500mn savings) and c) improving operational efficiencies across its all other Indian units (incremental savings of Rs40bn). This exercise is expected to start delivering results from Q2FY26 onwards. We have already built in half of targeted savings at TSN and with current strong domestic pricing, we expect TATA to outperform FY26E estimates with ease.

Outlook

In near term, TATA would focus on a) ramping up of KPO-II, b) completion of 0.75mtpa Ludhiana EAF, c) capex for 3mtpa TSUK EAF, and d) rationalization activities at TSN & TSI. We tweak our FY26E/27E EBITDA estimates by -4/-1.5% and expect EBITDA CAGR of 33% over FY25-27E on the back of KPO volume ramp-up, stable domestic pricing and TSE turnaround. At CMP, the stock is trading at 7.1x/5.6x EV of FY26E/FY27E EBITDA. We maintain ‘Buy’ rating with revised TP of Rs176 (earlier Rs173) valuing at 6.5x EV of Mar’27E TSI EBITDA.

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