Tata Steel Stock Hits New Record High As Brokerages Raise Price Targets

Shares of Tata Steel Ltd. hit a fresh lifetime after analysts raised their FY22 earnings estimates and target prices, citing a rally in steel prices amid supply crunch and decarbonisation efforts in China.

TV Narendran, chief executive officer and managing director at the steelmaker, in a conference call after fourth-quarter results, said he sees a structural shift in the industry and expects the next 10 years for the steel cycle to be very different than the previous decade due to impact of China’s commitment towards its carbon print, China’s stringent export policy and the geopolitical issue which makes the cost structure pretty expensive as they continue to buy coal from sources other than Australia.

He also expects spreads for auto contracts to go higher by 70 euros in the Netherlands and £40 in the U.K. on a sequential basis in the first quarter.

Brokerage Views:

Jefferies

• Encouraged by above-estimated Q4 numbers and commentary, it upgraded FY22-23 Ebitda estimates by 28-48% and EPS by 51-81%.
• Despite 65% year-to-date outperformance versus Nifty, Tata Steel is at a reasonable 1.2x FY23 price/book value versus 2010/2018 peaks of 1.8-2.2x.
• It revised the target price on the stock to Rs 1,500 from Rs 1,125 apiece.

Morgan Stanley

• It raised FY22-23 Ebitda estimates by 32%, which drives debt lower, leading to a 50% increase in equity value.
• It also lowered its bear case and lifted bull-case probability weights given the outlook for further 5 percentage point increase in steel prices, adding another 13% to the target price which now stands at Rs 1,630 from Rs 1,000 apiece.

JPMorgan

• It has increased its FY22E/23 adjusted Ebitda estimates by 28%/5%.
• Its FY22/23 steel price assumptions are $750/$650 per tonne versus spot hot-rolled coil price of $1,030/t and the 10-year average of $530/t.
• It has increased March 2022 target price to Rs 1,485 (FY23E basis) from Rs 1,250 (FY22E basis).

CLSA

• See structural strength in Tata’s balance sheet even in a stressed case scenario, and expect net debt to Ebitda to be lower than 3x.
• Raise our FY22-23 Ebitda estimates 8%-14% on its better FY21 results and stronger price outlook.
• With the stock trading at a 1.2x FY23 PB with an ROE of 16%, see risk-reward as favourable.
• Maintain buy rating, lift target price to Rs 1,350.

Investec Securities

• It increased the target price to Rs 1,850 from Rs 1,175 a share, highlighting that Tata Steel is its preferred proxy best placed to play the ferrous cycle with higher leverage versus enterprise value.

Shares of Tata Steel rallied as much as 7%—the most since April 8, 2021—to Rs 1,184.75 apiece, also a record high, around 12:40 p.m. on Friday. Of the 32 analysts tracking the company, 27 recommend a ‘buy’, four suggest a ‘hold’ and one has a ‘sell’ rating, according to Bloomberg data.