Brokerages claim that Tata Steel shares may return up to 58 percent in a year when they rise; find o

Updated: Jul 15

Tata Steel Share Price: After falling to a low point, the steelmaker is now seeing growth. The stock has increased by over 7% since reaching a record low on June 23, 2022. However, the current price of this company is currently 43% below its all-time high. This is a result of commodity price volatility brought on by geopolitical tensions shown in metal stocks. While domestic demand has rebounded significantly due to consumer de-stocking, steel prices in India have corrected sharply to Rs 60–Rs 61k/t. The domestic steel market is not expected to continue declining, according to JPMorgan analysts. With a target price of Rs. 1,400, the international brokerage firm has an "overweight" rating on the stock and anticipates a gain of more than 58% from the present market price.

"Overall, Tata Steel is dedicated to reducing its net debt by about $1 billion, and we see upside risk to this amount if underlying earnings continue to be strong. Tata Steel could provide another year of significant net debt reduction because of the working capital release and increased underlying profitability, the paper noted.

Markets are likely to be concerned about an impending recession, but JPMorgan thinks the steel industry is also dealing with several one-time problems (export tax, fall in China demand on COVID-19, rains, etc.) that should pass.

"Tata Steel's presence in Europe has significantly decreased, whereas growth in India should continue. Strong volume visibility and a strengthening balance sheet are produced by TATA's KPO expansion of 5MT, huge captive iron ore mining ramp-up, and new brownfield expansion pipeline, it was stated.

However, the firm noted that two major downside risks to its rating and price target include a severe decrease in steel spreads and a sharp decline in Indian steel demand.

"While TATA has appealing expansion options in several locations in India (NINL, KPO, Meramandali), we think the main obstacle for TATA (and the large Indian Resource firms) is NOT capital, but rather, how to aggressively deploy it on the ground. Large projects are still challenging to complete on time due to workforce mobilization concerns and contractor problems. After TATA's 5MT KPO is operational in 2HFY24, we anticipate that the company will begin planning its subsequent growth, according to a note from JPMorgan.

Tata Steel's outlook has been modified by Moody's Investors Service from stable to positive. The shift from negative to positive in the outlook reflects the domestic steel giant's history of delivering strong operational results while upholding prudent financial policies and the likelihood that rating pressure will increase over the coming year if recent improvements in performance and credit metrics are maintained.

According to Kaustubh Chaubal, a senior vice president at Moody's, "Tata Steel's well-planned capital allocation policy, which prioritizes debt reduction above capital expenditure and new projects, supports our positive outlook."

According to Chaubal, the significant debt reduction that has been accomplished over the past two years and the reduction that will occur over the remaining months of FY'23 will significantly increase the company's financial flexibility and resilience and position it for an investment-grade rating.

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