Tata Steel Gets Coverage Initiation With 'Buy' Rating As Nomura Expects India Growth And European Turnaround

Nomura has initiated coverage on Tata Steel Ltd. with a ‘Buy’ rating and a target price of Rs 215, implying an upside potential of 25%. The brokerage sees strong growth in India, turnaround in Europe and improving macros.

“We initiate coverage of Tata Steel with a Buy rating on account of domestic focus amid strong demand dynamics, improved utilisation from Kalinaganar, a turnaround of European operations, a partial benefit of lower iron ore cost likely to persist after FY30F and valuation comfort.”

Nomura derived a target price of Rs 215 for Tata Steel by applying a slightly higher-than-historical mid-cycle one-year forward EV/Ebitda of 6.9 times. The stock currently trades at 2.1 times P/B.

However the brokerage also listed some risks for Tata Steel posed by delays in Neelachal Ispat Nigam Ltd.'s (NINL, unlisted) expansion, weaker-than-expected demand growth, lower spreads, and sustained elevation in iron ore prices beyond FY30F.

The brokerage then further added that, “we expect Tata Steel to strengthen its leadership in India over the next few years, driven by capacity expansion, efficiency gains, and sustainability initiatives. We project higher asset utilisation (up to 96% by FY28F) and improved operating leverage to support margin expansion.”

The brokerage also believes that investor concerns over the potential loss of iron ore mines post-FY30 are unwarranted and overstated. “We expect Tata Steel to remain the lowest RM cost/t player in the industry largely on account of presence of non-auctioned captive mines even after FY30-16% of total reserves, likely lower iron ore prices due to increased global supply of low-cost iron ore, and likely lower domestic auction premium due to increased domestic supply.”