Reduce Tata Steel; target of Rs 300: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Tata Steel

Tata Steel (TATA) reported Q1FY21 EBITDA below our/consensus estimates by 76%/61% at Rs5.1bn (down 89% QoQ/down 91% YoY), due to lower than expected earnings across operations. Impacted by weak spreads and lower volumes, TATA Steel Europe (TSE) reported EBITDA loss of US$82mn (v/s PLe: Loss of US$45mn and positive EBITDA of US$9mn in Q4FY20). Indian operations earnings missed our/consensus estimates by 32%/18% owing to lower volumes and higher than expected costs. Domestic EBITDA margins fell 53% QoQ/↓55% YoY to Rs5,900/t (PLe:Rs8,420). Stock moved up ~35% over last couple of months in light of strong recovery improvement in Chinese prices (up 25% from bottom) and low coking coal prices. We maintain our bearish outlook on the sector as we see weakness in steel prices Q3CY20 onwards due to ease in China’s pent-up demand and sharp increase in global steel production, led by strong margins.

Outlook

Weak market outlook, over-stretched debt levels (Net debt/EBITDA of 5.0x on normalized FY22e earnings) and weak overseas asset portfolio drives our negative view on the stock. Hence, we maintain Reduce rating with TP of Rs300 (Earlier Rs250), EV/EBITDA of 6.5x FY22e.

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