Analysts raise Tata Steel targets after UK deal – ET Infra


MUMBAI: Analysts at most brokerages have raised their price targets on Tata Steel shares in reaction to the company’s joint investment plan with the UK government to build the country’s largest steelworks in Wales. The move, which is estimated to reduce the steel maker’s losses from Europe, has removed an overhang for the stock, said analysts.

“We believe the recent developments related to Tata Steel UK will serve as a favourable catalyst for the stock price as it eliminates a key overhang for Tata to provide cash support from India operations to TSUK (Tata Steel UK) in the long term,” said Ravi Sodah, analyst at Elara Capital.

Tata Steel shares, which gained 12% in the last month, ended 1.5% lower at ₹130.4 on Monday.

While Tata Steel and the UK will invest £1.25 billion – including a government grant of £500 million – to build an Electric Arc Furnace (EAF) steel plant at Port Talbot – a town in Wales, the existing facility, which is nearing the end of its operational life, will be restructured. Tata Steel in the UK has been lossmaking.

“The finalisation of £500 million grant from the UK govt for a £1.25bn EAF (Electric Arc Furnace) facility at TSUK (Tata Steel UK), removes a key overhang for Tata Steel,” said brokerage IIFL’s analysts Anupam Gupta and Mudit Bhandari in a client note. “This is because cash support from India operations (£163 million in FY23) fades incrementally, during the transition.”

Analysts said the step to replace the existing facility with a new one would help the company’s earnings.

“We believe the proposal if approved could sustainably reduce UK losses and is a step in the right direction,” said Kotak Institutional Equities’ analysts Sumangal Nevatia and Siddharth Mehrotra in a note to clients.

While maintaining their ‘buy’ rating on the stock, Kotak Securities and ICICI Securities raised their price target from ₹135 to ₹150. Phillip Securities has increased it to ₹150 from ₹140. Investec raised the target price to ₹167 from ₹135.

“We believe value accretion due to lower losses at the UK operation FY25 onwards will be offset by the capex involved in the transition,” said brokerage Nuvama’s analysts Ashish Kejriwal and Jyoti Singh in a client note. “Indian operations continue to do well and drive the stock.”

Nuvama said the stock is a buying opportunity on dips.

  • Published On Sep 19, 2023 at 07:44 PM IST

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