Tata Steel stock's valuation discount relative to Indian steel peers is unwarranted, according to HSBC. The brokerage believes the company's strong domestic business, improving balance sheet and healthy cash flows should support its financial performance over the next two years.
Tata Steel has witnessed a significant valuation de-rating relative to listed Indian steelmakers in 2026, reflecting investor concerns over its long-term profitability in India, potential market share losses and challenges in its European operations.
According to HSBC, Tata Steel's average one-year forward enterprise value to EBITDA (EV/EBITDA) multiple traded at a 14% discount to JSW Steel, a 3% discount to Jindal Steel and a 28% premium to Steel Authority of India Ltd. (SAIL) during 2023-2025.
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However, the discount has widened significantly in 2026, with Tata Steel trading at a 29% discount to both JSW Steel and Jindal Steel, and an 11% discount to SAIL.
HSBC has retained its ‘Buy' rating on Tata Steel shares with an unchanged target price of Rs 260 per share.
Why HSBC Remains Positive On Tata Steel
HSBC identified three key investor concerns: the potential loss of cost advantages from captive iron ore mining after 2030, the risk of market share erosion amid limited upstream expansion, and the possibility of substantial capital expenditure requirements at its Netherlands operations.
The brokerage believes these concerns are overstated. Tata Steel is expected to retain more than 25% captive iron ore availability even after 2030, while operational efficiencies and a greater focus on value-added steel should support industry-leading profitability.
Expansion at Neelachal Ispat Nigam Ltd. (NINL), a potential Maharashtra project and a focus on value-added products could also help the company defend its position in key customer segments.
HSBC does not expect Tata Steel to commit significant capital to its Netherlands operations without greater regulatory clarity and improved cash flow visibility.
Debt Reduction Could Be A Key Catalyst
The brokerage expects Tata Steel's consolidated net debt to decline over the next two years, supported by strong operating cash flows and relatively limited capital expenditure.
Robust domestic steel demand, particularly for flat steel, and import protection measures should help sustain elevated domestic steel spreads. Meanwhile, a meaningful recovery in the UK business could take another two to three years, following the commissioning of its electric arc furnace.
HSBC identified the normalisation of Netherlands operations and further debt reduction as key potential catalysts for narrowing Tata Steel's valuation discount.
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