Motilal Oswal has given Neutral recommendation for Tata Steel with a target price of Rs. 1210 in its research report issued on Jun 23, 2021
Motilal Oswal’s research report on Tata Steel
Tata Steel (TATA)’s FY21 Annual Report highlights the ambition of the company to maintain leadership in volumes, cost, and sustainability. With improved cash flows, the focus is back on growing the India business, wherein it aims to double capacity to 35–40mt by 2030. However, it plans to tread cautiously on this path as debt repayment remains the focal point for the management. On Tata Steel Europe (TSE), the management palpably appears concerned about the tightening emission norms in Europe, rising carbon credit costs, and the resulting lower competitiveness against imports to Europe, which pose a key challenge in the longer term. While we expect deleveraging to continue on the back of higher prices, rising carbon costs and the burden of sustainability capex in TSE are key concerns, in our view. Thus, we assign a Neutral rating, with TP of INR1,210.
We arrive at our TP of INR1,210/sh on FY23E EV/EBITDA of 5x for its India operations and 4x for Europe. Our TP implies EV/capacity of USD902/t, a 30% premium to the past five-year average of USD700/t to factor in the benefit from likely deleveraging from the current upcycle. Given limited upside, we however rate it Neutral.