Tata Steel Netherlands' New Program Is A Positive Despite A Tough Macro Backdrop, Say Analysts
This initiative can help Tata Steel Netherlands' Ebitda per tonne climb up to $80-100, according to analysts.
Tata Steel Ltd. will be embarking on significant cost restructuring for its Netherlands operations. This initiative can help Tata Steel Netherlands' Ebitda per tonne climb up to $80-100, according to analysts.
The program aims to cut the Netherlands vertical's fiscal 2026 controllable costs by 15%, compared to FY25. The management aims to save costs amounting to €500 million during the financial year.
About Tata Steel Netherlands
Tata Steel Netherlands currently has a liquid steel production volume capacity of 6.5 million tonnes per annum. However, challenging demand conditions in Europe have impacted trade and led to supply chain disruptions and rising energy costs. This has impacted the arm's financial performance.
In the third quarter of fiscal 2025, Tata Steel Netherlands barely broke even and the arm's Ebitda per tonne slipped into marginal losses.
Moreover, the company is planning to decarbonise the Netherlands' arm, like they did with the UK. However, management commentary in the analyst meet on Friday noted that both the blast furnaces at Netherlands will operate until 2030 and will be replaced by a Direct Reduced Iron and Electric Arc Furnace after that. The company is currently in discussion with the Dutch government for the same.
Transformation Program
The newly announced transformation program for Tata Steel Netherlands aims to cut the vertical's fiscal 2026 controllable costs by 15% when compared to FY25. The company aims to save costs amounting to €500 million in FY26 and an additional €50-60 million in FY27. The €500 million annualised savings will be realised from H2FY26, and the full benefit of program is to come in by FY27.
While this one-year program will address various parameters like raw material costs, product mix, repair and maintenance costs, yields, etc., one of the controllable costs Tata Steel has given more details about are employee costs. The program will lead to a removal of 1,600 jobs that will lead to a total cost savings of €180 million.
Brokerage View
This program is, therefore, set to help Tata Steel Netherlands' Ebitda per tonne. B&K Securities estimates an Ebitda per tonne of $80, while Investec forecasts and Ebitda per tonne of $100 by FY27.
Investec also upgraded Tata Steel to a 'hold' rating from a 'sell' previously, post the analyst call. The brokerage has raised its target price on the stock to Rs 140 from Rs 125 previously. This implies an upside of 12.2%.
JPMorgan maintained an 'overweight' rating on the stock with a target price of Rs 180 per share. Tata Steel's structural cost reduction initiatives should not be ignored and this announcement is a positive development against a tough macro backdrop, it said.
Macquarie also has an outperform rating with a Rs 156 target. The cost optimisation will aid the decarbonisation capex. The benefits for the same will start reflecting on the books by the second quarter of the new fiscal and be achieved by the fourth quarter.
