Buy Tata Steel; target of Rs 728: IIFL

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26 Aug, 2025 12:21

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IIFL`s research report on Tata Steel“Tata Steel’s domestic operations have been persistently delivering strong operational performance even though both the domestic as well as international demand scenario has been subdued. The company has managed to raise its steel sales from 6.6mn tons in FY12 to 8.5mn tons in FY14 led by the commissioning of the 2.9mtpa plant in FY14. Going forward, we expect a volume CAGR of 9.8% led by full utilisation of current capacities and the commissioning of the Kalinganagar plant by the end of FY15. EBIDTA/ton in FY14, which was flat on a yoy basis, is expected to improve due to lower coking coal prices, operational efficiencies, superior product mix and stable steel prices. Led by a combination of higher volumes and expansion in margins, we expect operating profit to jump 45.5% over FY14‐17E.” “Tata Steel has managed to get back on its growth trajectory over the last one year following improved performance in domestic business and a turnaround at operating level in Europe. We believe the turnaround in European operations would gain steam in FY15 led by a revival in European demand, impact of the various cost saving initiatives and subdued raw material prices. Domestic performance is expected to get better with the commissioning of the new plant at Kalinganagar. Domestic margins are expected to increase from current levels due to lower coking coal costs and higher production efficiency. Net debt is expected to decline 11% over FY14‐ 17 on account of higher cash flows in India, European operations turning free cash flow positive from FY16, reducing capex intensity and company’s persistent effort to unlock value by selling non‐core assets.”“We believe Tata Steel would further witness some re‐rating as the European recovery gains momentum. The SC ruling on coal blocks allocated post 1993 would not impact the company’s earnings as mines were allocated prior to 1993. Tata Steel remains our preferred pick in the steel sector on the back of strong performance registered in the last one year and due to the various earnings driver for the company over the next two years. We recommend a BUY rating on the stock with a 2‐year price target of Rs728,” says IIFL research report.   

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