Tata Steel Stock Jumps To The Highest In Over A Year As Analysts Raise Targets
Here’s what brokerages have to say about Tata Steel’s Q2 performance and deleveraging efforts.
Shares of Tata Steel Ltd. rose to the highest in more than a year after analysts raised their price targets on the steelmaker, citing a scope for deleveraging on a potential sale of its Netherlands business, improved profitability and continued recovery in domestic demand.
India’s oldest steelmaker said it’s in talks with Swedish steelmaker SSAB AB to sell its Netherlands unit and reduce the burden from its cash-draining European operations. Negotiations are ongoing for the IJmuiden steel mill and related downstream assets, Tata Steel said in a statement releasing its quarterly results.
The Tata Group firm also said that it will reorganise its India business and simplify the group structure by clubbing listed and unlisted subsidiaries into four clusters. The business clusters will be long products, downstream, mining, and utilities and infrastructure, it said in the statement.
The company reported a 60% year-on-year rise in operating profit for the July-September period, while margin expanded more than 500 basis points to 16.4%. Its consolidated net profit, however, tanked 62.7% over the year-earlier to Rs 1,546.3 crore on account of losses at overseas subsidiaries.
Still, that didn’t deter analysts from maintaining their bullish investment recommendation for the steelmaker. Of the 29 analysts tracking Tata Steel, 21 have ‘buy’ ratings, five suggest a ‘hold’ and the rest rate ‘sell’.
Shares of Tata Steel rose as much as 5.3% to Rs 518.4 apiece—the highest since May 2019. The stock is also up for the third straight day.
Here’s what analysts had to say:
Jefferies
- Maintains ‘buy’ rating; raises price target to Rs 680 from Rs 485 apiece
- Ebitda per tonne for the India business should expand further as the full benefit of recent steel price hikes flow through
- A potential sale of Netherlands plant can drive value unlocking
- Reduced exposure to Europe can aid valuations
- Upgrades FY22-23E EPS estimates by 22-25%
- The bull case price target is Rs 900
Morgan Stanley
- Maintains ‘overweight’ rating; hikes price target to Rs 690 from Rs 565
- Rising steel prices, domestic iron ore prices and soft coking coal prices good for India business
- A potential sale of Netherlands operations could be a material deleveraging transaction
- Raises FY21-23 Ebitda estimates by 8-23%
- Well placed in the current industry upcycle
- Bull case target raised to Rs 1,000 from Rs 705
Emkay
- Upgrades to ‘buy’ from ‘hold’; raises price target to Rs 638 from Rs 463
- Divestment of Europe holds the key to re-rating
- Difficult to find a buyer for the U.K. assets given weak Ebitda profile
- Raises valuation multiple for the India business to seven times
- Remains a play on deleveraging in a buoyant steel cycle until the Kalinganagar expansion is commissioned
- Key risks: Slump in steel prices, no divestment of European business
IDBI Capital
- Maintains ‘buy’ rating; raises price target to Rs 576 from Rs 525
- Indian operations drive Ebitda beat
- Expects second half of FY21 to be stronger for India operations
- Strong profitability/asset sales to contribute to further fall in net debt over the next two years
- Raises FY21 Ebitda estimate by 41%
- Expects higher steel prices to sustain
Antique Stock Broking
- Upgrades to ‘buy’ from ‘hold’; raises price target to Rs 564 from Rs 398
- Higher volumes, favourable product mix aid domestic Ebitda
- Proceeds from potential sale in European business can lead to deleveraging
- Domestic steel demand is expected to continue to recover