Credit Suisse has maintained ‘Outperform’ rating on Tata Steel with a price target of Rs 830 per share, implying a potential upside of 16 percent from Friday’s close.
Tata Steel's 5 million tonne brownfield capacity expansion will cost Rs 23,500 crore over four years and rights issue will keep leverage ratios at a comfortable level for organic expansion.
Capex will lead to higher debt, no EBITDA (earnings before interest, tax, depreciation and amortisation) generation at a point making the stock look expensive, Credit Suisse feels.
Last week, Tata Steel decided to expand the capacity of Kalinganagar plant by 5 million tonnes per annum (MTPA) to 8 MTPA with an investment of Rs 23,500 crore.
The company also reviewed its financial strategy in the light of organic and inorganic growth strategy and approved financial plan to raise capital for the plan.
"The Board approved issuance of equity and equity linked instruments including ordinary shares of the company by way of a rights issue to existing shareholders on record date for an amount not exceeding Rs 12,800 crore...," the statement said.
Credit Suisse said project enterprise value is much higher than capital expenditure cost.
The research house further said outlook does not change, and it remains constructive on the stock.
At 11:18 hours IST, the stock price was quoting at Rs 715.10, up 0.63 percent on the BSE.
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