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Tata Steel Ltd>
  • CMP : 176.2 Chg : 0.70 (0.40%)
  • Target : 130.0 (17.12%)
  • Target Period : 12-18 Month

08 Feb 2023

Performance set to improve, going forward….

About The Stock

Tata Steel Group is among top global steel companies with an annual steel production capacity of ~34 million tonnes per annum (MTPA).

  • Tata Steel (TSL) is one of the world’s most geographically diversified steel producers, with operations and commercial presence across the world
  • TSL has been a part of the DJSI Emerging Markets Index since 2012 and has been consistently ranked among top 10 steel companies in the DJSI Corporate Sustainability Assessment since 2016

Tata Steel’s consolidated EBITDA came in broadly in line with our estimate for Q3FY23.

  • For Q3FY23, Tata Steel’s standalone operations reported sales volume of 4.5 million tonnes (MT), up 6% YoY but down 4% QoQ (our estimate: 4.5 MT). Tata Steel standalone operations reported EBITDA/tonne of
    ₹ 11350/tonne, marginally lower than our estimate of ₹ 12500/tonne. For Q3FY23, Tata Steel’s European operations reported negative EBITDA/tonne of US$95/tonne (our estimate of negative EBITDA/tonne of US$75/tonne)
  • For Q3FY23, Tata Steel’s consolidated operations reported a topline of
    ₹ 57084 crore, down 6% YoY, 5% QoQ. Consolidated reported EBITDA for the quarter was at ₹ 4048 crore, down 75% YoY and 33% QoQ, broadly in line with our estimate of ₹ 4279 crore
  • The British Steel Pension Scheme (BSPS) with Tata Steel UK as sponsor has completed a substantial part of its de-risking journey with ~60% of its liabilities insured. The buy-in transaction along with actuarial movements has resulted in a non-cash deferred tax expense of ₹ 1783 crore & increased the overall deferred tax expense for the quarter to ₹ 2150 crore. The ensuing consolidated reported net loss for the quarter was at ₹ 2502 crore
What should Investors do?

Tata Steel’s share price has given a return of ~59% in the last two years (from ~₹ 70 in February 2021 to ~₹ 111 in February 2023).

  • We maintain our BUY rating on the stock
Target Price and Valuation

We value TSL at ₹ 130, based on SoTP valuation.

Key Triggers for future price performance
  • Going forward, for the Tata Steel Standalone operations, we model EBITDA/tonne of ₹ 13500/tonne for FY23E and ₹ 17000/tonne for FY24E
  • Going forward, for Tata Steel European operations, we model EBITDA/tonne of US$100/tonne for FY23E and US$60/tonne for FY24E
Alternate Stock Idea

In our metals and mining coverage, we also like JSL.

  • Jindal Stainless (JSL) operates an integrated stainless steel plant at Jajpur, Odisha.
  • BUY with a target price of ₹ 300

Key Financial Summary

(| Crore) FY19 FY20 FY21 FY22 CAGR (FY17-22) FY23E FY24E CAGR (FY22-24E)
Net Sales 157,669.0 139,816.7 156,294.2 243,959.2 17.0 239,173.6 244,869.1 0.0
Reported EBITDA 29,383.3 17,463.1 30,504.3 63,490.0 30.0 33,644.3 37,990.7 -15.0
PAT 8,994.6 4,736.5 9,233.0 41,749.3
EPS (|) 7.9 4.1 7.7 34.3 - 7.9 12.3 -
EV/EBITDA (x) 7.2 13.3 7.1 3.1 - 6.2 5.2 -
RoCE (%) 13.8 4.8 13.1 28.5 - 11.5 13.1 -
RoE (%) 13.0 6.4 12.4 36.4 - 7.9 11.3 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key Highlights on conference call.....

Indian Operations

  • For Q4FY23, with respect to the Indian operations, realisations are expected to higher by ~| 1400-1500/tonne QoQ, compared to Q3FY23. For Q4FY23, with respect to Indian operations coking coal consumption cost is expected to decline by ~US$10/tonne QoQ when compared with Q3FY23


  • At Kalinganagar, phased commissioning of 6 million tonnes per annum (MTPA) pellet plant has begun. Work on 2.2 MTPA Cold Roll Mill complex and 5 MTPA expansion is ongoing


  • Neelachal Ispat Nigam (NINL) has begun operations and is being ramped to rated capacity of around 1 MTPA

European Operations

  • During the quarter, with respect to Tata Steel European operations, NRV loss on steel inventory was at ~ £ 55 million


  • For Q4FY23, with respect to Tata Steel European operations, while realisations are expected to decline by ~ £ 70/tonne, the costs are expected to decline by ~ £ 100/tonne.


  • The company has made further progress on de-risking the British Steel Pension Scheme (BSPS) by expanding the insurance coverage on liabilities from 30% to 60%. Depending on market conditions, the residual insurance of 40% of liabilities will be completed in the first half of the calendar year 2023 and there will be a commensurate non-cash deferred tax expense


  • For Q3FY23, Tata Steel incurred a capex to the tune of | 3632 crore while for 9MFY23 capex was at | 9746 crore. For Q4FY23E, the company plans to incur a capex to the tune of ~| 3000 crore
  • For Q4FY23, Tata Steel’s   overall consolidated sales volumes are expected to 0.5 MT, higher compared to Q3FY23



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