Neutral Tata Steel; target of Rs 130: Motilal Oswal

Motilal Oswal's research report on Tata Steel

Tata Steel (TATA)’s revenue increased 2% YoY to INR347b, which was in line with our estimate of INR343b. Standalone ASP was down by INR2,851/t YoY to INR71,069/t (INR437/t above our estimate of INR70,633/t).  EBITDA jumped 61% YoY to INR82b, which was above our estimate of INR69b; EBITDA/t improved by INR5,716/t YoY to INR16,905/t, which was INR2,725/t above our estimate of INR14,180/t. The beat was due to the movement in inventory value of chrome ore, which primarily drove the decline in raw material (input) costs. APAT surged 96% YoY to INR46b, 19% above our estimate of INR39b. Standalone production stood at 5.1mt (up 8% YoY), and TATA posted the best ever 3Q sales at 4.9mt (up 6% YoY), in line with our estimate. Domestic crude steel production (including all domestic subsidiaries) was up 6% YoY at 5.3mt.

Outlook

TATA is trading at 6.5x FY26E EV/EBITDA and 1.6x FY26E P/B. We believe the stock is adequately priced in, and hence, we reiterate our Neutral rating with an SOTP-based TP of INR130.