Tata Steel Stock Jumps To The Highest In Over A Year As Analysts Raise Targets

The Tata Steel Ltd. logo sits on a flags flying outside the Tata Steel Ijmuiden BV plant in Ijmuiden, Netherlands. (Photographer: Jasper Juinen/Bloomberg)

Shares of Tata Steel Ltd. rose to the highest in more than a year after analysts raised their price targets on the steelmaker, citing a scope for deleveraging on a potential sale of its Netherlands business, improved profitability and continued recovery in domestic demand.

India's oldest steelmaker said it's in talks with Swedish steelmaker SSAB AB to sell its Netherlands unit and reduce the burden from its cash-draining European operations. Negotiations are ongoing for the IJmuiden steel mill and related downstream assets, Tata Steel said in a statement releasing its quarterly results.

The Tata Group firm also said that it will reorganise its India business and simplify the group structure by clubbing listed and unlisted subsidiaries into four clusters. The business clusters will be long products, downstream, mining, and utilities and infrastructure, it said in the statement.

The company reported a 60% year-on-year rise in operating profit for the July-September period, while margin expanded more than 500 basis points to 16.4%. Its consolidated net profit, however, tanked 62.7% over the year-earlier to Rs 1,546.3 crore on account of losses at overseas subsidiaries.

Still, that didn't deter analysts from maintaining their bullish investment recommendation for the steelmaker. Of the 29 analysts tracking Tata Steel, 21 have ‘buy' ratings, five suggest a ‘hold' and the rest rate ‘sell'.

Shares of Tata Steel rose as much as 5.3% to Rs 518.4 apiece—the highest since May 2019. The stock is also up for the third straight day.

Here's what analysts had to say:

Jefferies

Maintains ‘buy' rating; raises price target to Rs 680 from Rs 485 apiece
Ebitda per tonne for the India business should expand further as the full benefit of recent steel price hikes flow through
A potential sale of Netherlands plant can drive value unlocking
Reduced exposure to Europe can aid valuations
Upgrades FY22-23E EPS estimates by 22-25%
The bull case price target is Rs 900

Morgan Stanley

Maintains ‘overweight' rating; hikes price target to Rs 690 from Rs 565
Rising steel prices, domestic iron ore prices and soft coking coal prices good for India business
A potential sale of Netherlands operations could be a material deleveraging transaction
Raises FY21-23 Ebitda estimates by 8-23%
Well placed in the current industry upcycle
Bull case target raised to Rs 1,000 from Rs 705

Emkay

Upgrades to ‘buy' from ‘hold'; raises price target to Rs 638 from Rs 463
Divestment of Europe holds the key to re-rating
Difficult to find a buyer for the U.K. assets given weak Ebitda profile
Raises valuation multiple for the India business to seven times
Remains a play on deleveraging in a buoyant steel cycle until the Kalinganagar expansion is commissioned
Key risks: Slump in steel prices, no divestment of European business

IDBI Capital

Maintains ‘buy' rating; raises price target to Rs 576 from Rs 525
Indian operations drive Ebitda beat
Expects second half of FY21 to be stronger for India operations
Strong profitability/asset sales to contribute to further fall in net debt over the next two years
Raises FY21 Ebitda estimate by 41%
Expects higher steel prices to sustain