Tata Steel: Higher realisations drive strong earnings

Research evidence excerpt

Tata Steel: Higher realisations drive strong earnings

Forecast returns

Forecast price appreciation 17.6%

Forecast dividend yield 2.8%

Forecast stock return 20.5%

Market return assumption 12.0%

Forecast excess return 8.5%

Company Description

Tata Steel (TATA) is a global integrated steel producer with consolidated crude steel capacity

of ~35mtpa in FY26. India capacity of 26.6mtpa is concentrated in Jamshedpur (11mtpa),

Kalinganagar (8mtpa), Meramandali (5.6mtpa) and other locations. International capacity

includes 7mtpa in the Netherlands and a 1.7mtpa scrap facility in Thailand, while the UK

operation is transitioning production method to electric arc furnace (EAF). The company has

high raw material integration, with mines for iron ore, coal, chromite, and manganese.

Valuation Method and Risk Statement

We base our price target on an EV/EBITDA multiple, checked against P/BV.

Major risks for Tata Steel include: 1) steel prices - earnings are highly sensitive to domestic

steel prices which in turn are influenced by international markets. Acceleration/deceleration

in China's domestic demand can influence international prices contributing to volatility; 2)

regulatory issues - in its day-to-day operations, the company interacts with several state and

central government agencies and regulatory bodies. Changes in regulations and government

protection schemes like import safeguard duties can have an impact on the company's

operations and earnings; 3) demand environment - an acceleration/slowdown in capital

expenditure across the government and private sectors can impact domestic steel

consumption, providing an upside/downside push for domestic steel sales; 4) raw materials -

import dependancy on key raw materials like coking coal can put upside/downside pressure