Buy Tata Steel, target price Rs 125: JM Financial (2024)

JM Financial has buy call on Tata Steel with a target price of Rs 125. The current market price of Tata Steel Ltd. is Rs 102.2.

Tata Steel Ltd., incorporated in the year 1907, is a Large Cap company (having a market cap of Rs 123618.84 Crore) operating in Metals - Ferrous sector.

Tata Steel Ltd. key Products/Revenue Segments include Steel & Steel Products, Power, Other Operating Revenue and Others for the year ending 31-Mar-2022.

Financials
For the quarter ended 30-09-2022, the company reported a Consolidated Total Income of Rs 60206.78 Crore, down -5.48 % from last quarter Total Income of Rs 63698.15 Crore and down -.57 % from last year same quarter Total Income of Rs 60553.63 Crore. Company reported net profit after tax of Rs 1195.20 Crore in latest quarter.

Investment Rationale
Tata steel reported consol. EBITDA of INR58bn, lower than JMfe of INR65bn. India businesses / Europe reported a sequential dip in earnings led by a sharp decline in steel realisations. The company delivered a PAT of INR15bn. Net debt during the quarter increased to INR718bn (up INR173bn QoQ) on account of payouts towards NINL acquisition, dividend payout and growth capex. The company also approved the amalgamation proposal of seven listed and unlisted entities, a value accretive merger with multiple benefits. Key takeaways from the call are – 1) realisations to trend lower by ~INK0.8k/t in 3QFY23 for India 2) co*king coal cost likely to be lower by USD80/t QoQ for India operations and USD100/t QoQ for Europe operations 3) Europe operations to witness margin contraction in 2H however the company does not expect EBITDA to turn negative 4) Higher long term contract prices in Europe (upto Dec’22) vs spot prices to aid realisations in 3Q 5) gas availability in Europe unlikely to impact operations 6) gas price in Europe remain high however company is hedged upto 75% for FY23. The company is progressing well on its 5MTPA Kalinganagar expansion and restarted NINL blast furnace within 3 months of acquisition. Tata steel expects to increase capacity to ~40 mn tons by FY30, with immediate focus on Kalinganagar and NINL. Further, spreads are expected to improve going forward with spot / 3Q spreads trending higher than troughs of 2Q.

Promoter/FII Holdings
Promoters held 33.92 per cent stake in the company as of 30-Jun-2022, while FIIs owned 21.95 per cent, DIIs 19.02 per cent.

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