Equity Research Report: Tata Steel (Q1FY24)

Subdued Chinese economic growth and lingering macro-headwinds are affecting steel prices/spreads negatively despite upbeat Indian demand

Company Overview, Business Model & Competitors:

Tata Steel is an Indian MNC, part of the diversified Tata conglomerate, and 2^nd largest iron-and-steel producer in India. Formerly known as Tata Iron and Steel Company Limited (TISCO), Tata Steel is among the top steel-producing companies globally with an installed crude steel capacity of 34 MTA. It is one of the world's most geographically diversified steel producers, with operations and commercial presence across the world in almost 26 countries, with key operations in India, the Netherlands, and the U.K. Its largest plant (10 MTPA) is located in Jamshedpur, India.

Tata Steel is the 2^nd largest steel company in India (measured by domestic production) with a capacity of around 20 MTA after PSU Steel Authority of India Ltd. (SAIL). Tata Steel is also on the way to adding another 5 MTA Greenfield expansions in the state of Odisha. Tata Steel, along with SAIL and Jindal Steel and Power Ltd. (JSPL), is the only three Indian steel companies that have captive iron-ore mines, which gives these companies price advantages. Tata Steel is one of the few steel companies that are fully integrated – from mining to the manufacturing and marketing of finished products. The main competitors of Tata Steel (India) are JSW Steel, Hindalco, Jindal Steel, and SAIL.

Overall, almost 58% of Tata Steel’s sales are domestic (India), 37% in Europe, 3% in South-East Asia, and 2% in the rest of the world. The manufacturing of steel products (HR coil, CR coil, coated sheets, merchant steel, machine wires, and structural products) constitutes almost 94%, while other (tubes, refractory, pigments, and investment activities) contribute around 6%. The Indian product portfolio is divided into four segments – Automotive and Special Products; Industrial Products, Projects, and Exports; Branded Products and Retail; and Services and Solutions. The Company supplies hot-rolled, cold-rolled, galvanized, branded solution offerings, and more.

Tata Steel is engaged in the business of steelmaking, including raw material and finishing operations. Its products include hot-rolled (HR), cold-rolled (CR), coated coils and sheets, coated steel coils and sheets, precision tubes, tire bead wires, spring wires, bearings, galvanized iron (GI), wires, agricultural and garden tools, conveyance tubes. Its segments include Agriculture, Automotive, Steel, Construction, Consumer Goods, Energy, Power, Engineering, and Material Handling. The Company operates under the brands Tata Agrico/ Agriculture, Construction & Hand Tools, Tata Astrum, Tata Bearings, Tata Ferro Alloys and Minerals Division, Tata Steel Industrial By-products Management Division (IBMD), Tata Pipes, Tata Precision, and others.

Tata Steel is one of the largest steel producers in Europe with a crude steel production capacity of over 12.4 MTA. It established its presence in the European continent after acquiring Corus in 2007. The manufacturing facilities in Europe comprise primary steel-making facilities in the Netherlands and the U.K., with downstream operations in the Netherlands, the U.K., Germany, France, Belgium, Sweden, and Turkey. The European operations produce a wide range of high-quality quality strip steel products for demanding markets such as construction, automotive, packaging, and engineering.

Tata Steel’s operations in South-East Asia, with 2.2 MTA capacities, began in 2004 with the acquisition of NatSteel, Singapore. The operations are run by NatSteel Holdings Pte; a wholly-owned subsidiary of Tata Steel. The Company’s flagship facility in Singapore is one of the largest single downstream rebar fabrication operations in the world. This plant is the only local steel mill with an integrated upstream and downstream operation, where steel is manufactured through recycling scrap, and fabricated according to customers’ needs.

In 2015, Tata Steel acquired a majority stake in Thailand-based steelmaker Millennium Steel, which strengthened its South-East Asian operations, is the largest and most diverse long steel manufacturer in Thailand using recyclable steel scrap as raw material. The product range includes High Tensile Rebars, ready to use Cut & Bend products, light structural, and specialty wire rods for making Tire cords, Tire beads, Wire Ropes, and stick electrodes. The company has a pan-Thailand distribution network and regularly exports steel to Laos, Cambodia, Indonesia, Malaysia, India, and Bangladesh. Overall, almost 94% of revenue comes from steel and 6% from others/allied.

Key managers: T.V. Narendran (CEO/ED/MD) and K. Chatterjee (CFO/ED)

Board Members: Chairman-Chandrasekaran

Key Shareholders: Tata Sons (Promoters)-32.71%

Highlights of Q1FY24 report card: Tata Steel (Consolidated-INR 100 Cr. =1B)

·         Operating revenue INR 594.90B vs 529.62B sequentially (-5.51%) and 634.30B yearly (-6.21%)

·         Sales 7.20MT vs 7.78MT sequentially (-7.46%) and 6.61MT (+8.76%)

·         Operating expense INR 543.16B vs 557.42B sequentially (-2.56%) and 484.57B yearly (+12.09%)

·         EBITDA INR 51.74B vs 72.19B sequentially (-28.33%) and 149.73B yearly (-65.44%)

·         Net interest paid INR 18.25B vs 17.94B sequentially (+1.76%) and 12.18B yearly (+49.83%)

·         Core operating profit (EBTDA=EBITDA-INTT) INR 33.49B vs 54.26B sequentially (-38.28%) and 137.55B (-75.65%)

·         Core operating EPS (EBTDA/Share) INR 2.74 vs 4.44 sequentially (-38.28%) and 11.26 yearly (-75.65%)

·         EBITDA margin 8.70% vs 11.47% sequentially (-2.77%) and 23.61% yearly (-14.91%)

·         EBTDA margin 5.63% vs 8.62% sequentially (-2.99%) and 21.68% yearly (-15.06%)

·         Interest/EBITDA 35.28% vs 24.84% sequentially (+10.43%) and 8.14% yearly (+27.14%)

·         Production 7.13 MT vs 7.80 MT sequentially (-8.59%) and 7.74 MT yearly (-7.88%)

·         Sales/Deliveries 7.20 MT vs 7.78 MT sequentially (-7.46%) and 6.62 MT yearly (+8.76%)

·         EBTDA/TON INR 7185.94 vs 9279.18 sequentially (-22.56%) and 22617.52 yearly (-68.23%)

·         EBITDA/TON INR 4651.01 vs 6973.78 (-33.31%) and 20777.48 (-77.62%)

·         TAX/PBT 62.56% vs 54.41% sequentially (+8.15%) and 35.69% yearly (+26.88%)

Highlights of Q1FY24 report card: Tata Steel (Standalone-INR 100 Cr. =1B)

·         Operating revenue INR 323.42B vs 342.76B sequentially (-5.64%) and 320.21B yearly (+1.00%)

·         Sales 4.62MT vs 4.98MT sequentially (-7.23%) and 3.89MT (+18.77%)

·         Operating expense INR 258.83B vs 261.45B sequentially (-1.00%) and 224.53B yearly (+15.27%)

·         EBITDA INR 64.59B vs 81.30B sequentially (-20.55%) and 95.68B yearly (-32.49%)

·         Net interest paid INR 10.16B vs 10.38B sequentially (-2.19%) and 7.22B yearly (+40.60%)

·         Core operating profit (EBTDA=EBITDA-INTT) INR 54.43B vs 70.92B sequentially (-23.24%) and 88.46B (-38.46%)

·         Core operating EPS (EBTDA/Share) INR 4.45 vs 5.80 sequentially (-23.24%) and 7.24 yearly (-38.46%)

·         EBITDA margin 19.97% vs 23.72% sequentially (-3.75%) and 29.88% yearly (-9.91%)

·         EBTDA margin 16.83% vs 20.69% sequentially (-3.86%) and 27.62% yearly (-10.79%)

·         Interest/EBITDA 15.72% vs 12.77% sequentially (+2.95%) and 7.55% yearly (+8.17%)

·         Production 4.65 MT vs 4.82 MT sequentially (-3.53%) and 4.73 MT yearly (-1.69%)

·         Sales/Deliveries 4.62 MT vs 4.98 MT sequentially (-7.23%) and 3.89 MT yearly (+18.77%)

·         EBTDA/TON INR 11782.36 vs 14240.66 sequentially (-17.26%) and 22739.51 yearly (-48.19%)

·         EBITDA/TON INR 13980.65 vs 16325.74 (-14.36%) and 24596.45 (-43.16%)

·         TAX/PBT 25.62% vs 29.30% sequentially (-3.67%) and 25.28% yearly (+0.35%)

Highlights of the investor presentation, management commentaries, and Q&A (analyst concall): Q1FY24

·         Overall terrible report card and also below market expectations amid a synchronized global slowdown on lingering macro-headwinds/higher inflation, and higher borrowing costs

·         More than expected muted Chinese recovery leading to tepid domestic demand in China and increasing exports from China, resulting in moderation in global steel prices

·         China was exporting around 8 MT/Month during May-June’23, the highest since 2016

·         Lower production and lower sales/deliveries, resulting in lower revenue due to European slowdown despite upbeat Indian demand

·         Indian steel spot prices moderated despite upbeat demand due to soft global prices

·         Indian steel production is down due to scheduled maintenance

·         Indian production is now almost 70% overall global consolidated production for Tata Steel

·         Overall spreads moderated across various global regions amid lower prices for RM (raw materials) and also finished steel prices due to the Chinese slowdown

·         Cocking coal prices declined around -25% to $220/T, iron ore -10% to $110/T; EU steel spread above $250/T

·         If we compare core operating EPS, Tata Steel Standalone (India) is a profitable business, while Tata Steel Europe (TSE) including U.K. business is now loss-making: Q1FY24: -1.71 (2.74-4.45); vs -1.36 (4.44-5.80) sequentially; +4.02 (11.26-7.24) yearly

·         Profitability was affected by non-cash deferred tax charges on account of buy-in transactions at the British Steel Pension Scheme (BSPS). With this, the insurance buy-in of BSPS has been completed, successfully de-risking Tata Steel UK (One time/exceptional)

·         Reported CAPEX for Q1FY24: Rs.40.89B

·         Work on 5 MTPA expansion at Kalinganagar and EAF mill of 0.75 MTPA in Punjab is progressing

·         Net Debt: Rs.713.97B; Group/consolidated liquidity: Rs.305.69B including Rs.190.43B cash & cash equivalents

·         European steel production was down due to scheduled maintenance (relining for BF6 at Tata Steel Netherlands); European steel delivery was around 2.58MT (7.20-4.62)

·         Higher revenue per ton in Europe was offset by higher input/RM costs including energy and ongoing maintenance/relining cost; the trend may remain the same in Q2FY24 also

·         Indian demand is being supported by multiple infra projects, automobile segment, energy projects (oil & gas, solar)

·         Indian business is being supported by over 200 distributors and 20000 dealers across the country along with online platforms

·         Overall global demand was subdued due to lingering macro-headwinds affecting commodity prices including steel

·         Although steel demand in India was strong around +10% (y/y) due to infra push, spot prices moderated in line with global cues

·         Tata Steel India's domestic deliveries grew around +19% against India’s apparent steel consumption growth of around +10%

·         Apart from infra demand, Indian steel demand is also supported by the affordable housing segment, and various industrial applications; branded products are in demand for the housing/construction segment (value-added products having high margins in housing/retail/industrial/automobile segment-pipes/tubes, wires and tinplate)

·         The 5 MTA expansion project at Kalinganagar is progressing/commissioning satisfactorily, which would contribute to the goal of 40 MTPA production capacity by 2030 from the present capacity of around 21 MTP

·         The 2.2 MTPA CRM complex to drive the product mix and the Pellet plant to drive savings

·         The 6 MTPA pellet plant to drive cost savings and drive self-sufficiency in pellets

·         80% share of business in India’s bullet train projects

·         Remain focused on cost optimization, operational improvements and working capital management to maximize cash flows; sustainability is at the core of Tata Steel's strategy

·         Focusing on green steel by using H2 and RE by gradually replacing coal

·         Looking ahead Indian demand remains supported by government infra spending and improving consumption across end-use segments, but subdued global prices and seasonality have dampened local prices/realizations also

·         Expect a further drop in realizations of around Rs.3100/Ton in Q2FY24 compared to Q1FY24, although there would be a drop in  cocking coal consumption by around $57/Ton sequentially

·         Expect a further drop in net realizations by around £38/Ton in Europe sequentially, while cocking coal consumption cost should also drop by $46/Ton along with ongoing maintenance cost

·         Higher royalty-related expenses for higher notified IBM prices (regulatory cost) also resulted in lower EBITDA apart from lower volume and lower realizations/spreads

·         NG-related hedging loss also resulted in lower EBITDA in Q1FY24

·         Higher standalone other income due to reclassification of assets related to Blue Scope (50:50 JV for specially coated products)

·         Higher tax provision issues due to BSPS settlement (de-risking) issues (TSU)

·         The volatility in the steel prices also affects WC (working capital) and CF (cash flow)

·         Continue to commit growth and CAPEX for India; spent around Rs.40.89B in Q1FY24 and Rs.155B in the last 12 months

·         Kalinganagar 5MTA expansion plan is a priority; so far spend around Rs.189B

·         Overall, the working capital and cash flows on account of higher capex, have led to an increase in the net debt of about Ra. 36B sequentially, which is now about Rs. 713.97B.

·         Finance costs are broadly stable on a sequential basis

·         Net debt to EBITDA is about 2.9x, and Net debt to equity is 0.69x; the FY24 target remains 2.5x for net Debt/EBITDA

·         The group liquidity remained strong at about Rs.305.00B, including Rs.190.00B of cash and cash equivalent

·         Recalibrating deleveraging targets by prioritizing growth in India in a sustainable way

·         For the UK, Tata Steel is in regular and intense conversations with the government, who have also indicated their willingness to secure a de-carbonized and competitive future for the UK steel industry Tata

·         Tata Steel has clearly articulated that the UK solutions have to be implemented quickly, have to be financeable in an effective manner, and will require to transition out of some of the end-of-life assets; i.e. Tata Steel is expecting some subsidy/grants from the British Government to make the U.K. operation feasible in the coming days

·         Over $800M annualized loss for TSE (Tata Steel Europe) over the last 3-quarters

·         TSN (Tata Steel Netherlands) was EBITDA/CF positive before the Russia-Ukraine war, but becomes sick subsequently on higher energy costs due to the lingering conflict; also scheduled maintenance work in one of the two blast furnaces in Q1FY24 affected production, revenue, and EBITDA; this may also continue in Q2FY24; but long term prospect remains bright, should be EBITDA positive in H2FY24 and after decarbonizing gets completed, TSN is expected to be PAT positive in from FY25

·         Tata Steel UK (TSU) has some structural issues to be probable and for this, the management is in touch/discussion with British Government for a long-term feasible solution; meanwhile, there may be subdued performance in the next few quarters/FY24 too

·         Tata Steel may take a decisive position in H2FY24 to restructure TSU for a different operating structure and model  from FY25 (most probably) for a long-term solution, but for this cooperation (grants) from the British government is necessary; more clarity will come after H2FY24

·         Tata Steel management is extremely mindful of the EBITDA losses and performance losses that happened in the European portfolio, but also assuring that they are working towards a structurally more robust operating configuration in both the UK and the Netherlands

·         Volume and cost-benefit out of Kalinganagar Plant (including pellets) may be partially visible by late FY24 and should fully reflect from FY25 onwards

·         The FY24 guidance of a 1.5 MT increase in volume still holds good amid higher production from Kalinganagar and Neelachal

·         Tata Steel is ensuring to secure sufficient captive mines of ore to support its target of 40 MTA steel production by 2030; has already around 500 MT of secured iron ore after recent acquisitions of Neelachal (110 MT), Bhushan (100 MT), Gandhalpada (350 MT) and Usha Martin (25 MT) for next 30-40 years and will ensure to secure more through the auction route in the coming days

·         TSN (Netherlands) is expected to be EBITDA positive by H2FY24 as energy costs are falling from €120/T to around€80/T recently; although still much higher than €35/T before the Russia-Ukraine war, even at the present level, the net spread should be around €265/T (compared to €230/T before the Ukraine war/under normal circumstances); TSN should report positive EBITDA by Q3FY24 and should be also EBITDA positive for FY24 basis

·         The UK business (TSU) may have to undergo a one-time structural cost in H2FY24 if negotiation with the British government yields no result

·         Net Debt/EBITDA target continues to be around 2.0x-2.5x every year despite some deviation quarterly due to volatility in realization

·         Tata Steel will continue to make a fine balance between mandatory CAPEX (such as blast furnace maintenance) and discretionary CAPEX (for expansion) as per evolving business cycle; will prioritize the growth of the business rather than too much deleveraging

·         The decarbonization process will be not a big issue for TSN (Netherlands) as it’s cash flow positive and Netherlands Government may grant some subsidy in the future and the company may also take some loans for the purpose (conversion of coal-based blast furnaces into an electric arc and then reducing electric furnace/green hydrogen)

·         Dutch plant is one of the most carbon efficient plants in the world, having carbon emission of 1.8 per ton of steel, compared to Jamshedpur’s 2.11, which is the best in India

·         Theoretically, one can make steel in India with lower carbon footprints and export it to Europe with a higher carbon border adjustment tax, but that’s not feasible

·         The process of carbon border adjustment tax is being discussed in India at various levels actively

·         Overall Steel Industry in Europe is being actively supported by various European governments for a greener transition and making ensure that in Europe, there is no unfair competition from less carbon-efficient sources

·         The CBAM (Carbon Border Adjustment Mechanism) is a carbon equalization process in Europe

·         The broad deleveraging target of net debt/EBITDA ~2.5x and overall $1B net debt reduction per FY continues to hold (binary target) as per evolving business, CAPEX and growth situation; the company will not sacrifice growth/future higher EBITDA for lack of CAPEX/funding; thus deleveraging will be done in a prudent way

·         CAPEX/blast furnace maintenance/green transition cost is not a big issue for TSN as its cash flow/EBITDA is positive and also being supported by the Dutch government actively, but this is not the case for TSU (U.K.) and thus the U.K. business has to be restructured

·         Hedging loss for energy cost (like NG) is an issue for Europe businesses (wrong analysis process), but there was some benefit in FY22

·         Guidance for Q2FY24: £38/T reduction in realizations in Europe and Rs.3200/T reduction in realizations in India; cocking coal consumption prices may fall by $50/T (benefit), while the higher cost for maintenance cost for cold rolling mill/blast furnaces may also drag

·         Active discussions are going on with British Government/regulatory authority for appropriate finance/grants and also policy support for restructuring and green transition of U.K. business in a long-term sustainable/profitable way; more details may emerge in H2FY24

·         No cash flow impact of BSPS (U.K.) insurance buy-in (£8B), because it’s a separate unit

·         Active discussions are also going on with Netherlands Government for a level playing ground with other EU-producing countries like Germany, Spain etc for a combination of funding and policy support

·         Now actively looking for a technology partner for a green transition

·         Tata Steel UK is also importing HRC from Tata Steel India (under regulatory quotas) for its downstream alignment (converting and selling to their customers)

·         Tata Steel India exports around 10-15% of production and exported only around 5% of production in Q1FY24; not so much dependent on exports now

·         China exported around 8 MT/month in Q1, higher than normal levels of 5-6 MT, compared to 10 MT during 2016-17

·         Higher Chinese exports in Q1FY24 resulted in lower steel prices globally

·         Now Chinese Government is not supporting steel exports actively due to EV/lower carbon footprint commitment, but Chinese producers produced additional steel in Q1FY24 in anticipation of higher domestic demand (after COVID recovery), which didn’t happen

·         Although Chinese exports of 8 MT/month is a headache for global steel prices, it’s not an alarming situation; but now Chinese exports are moderating and expected to fall 5-6 MT in the coming months (H2FY24), and prices of HRC should be more than $600-650/T rather than current prices $550-600/T

·         Guidance for FY24 consolidated CAPEX is around Rs.160B out of which Rs.110B is for India, the maximum of which is for Kalinga Nagar Plant, where already Rs.180B has been spent

·         NINL (Neelachal Ispat Nigam Ltd.) is on the way to being fully operational at full capacity from Aug’23 along with existing iron ore mines to ensure production at optimum cost levels; working on a future expansion to 4.00-4.50 MTA levels by FY25

·         Self-sufficient for iron ore till at least 2030 and for the expanded production target of 40 MTA beyond 2030; (36 MTA would be BF based, while 4 MTA is EAF based)-requires around 60-65 MTA of iron ore; already has 500-550 MT of iron ore available beyond 2030; will ensure appropriate bidding for new iron ore mines in Odisha and Jharkhand along with re-bidding for existing ones (after current lease expires) for 60-65 MTA iron ore capacity/production beyond 2030 to stay self-sufficient; typically around 1.6 MT iron ore is required to convert it to 1.00 MT raw steel through BF (Blast Furnace) process

·         The main focus is now on organic growth because existing sites like Jamshedpur, Kalinganagar, NINL, and Bhushan may go up 50 MTA against the target of 40 MTA production; but Tata Steel will also watch carefully any good opportunity for inorganic expansion (like RINL, NMDC or even VEDL steel assets)

·         There was an increase in working capital (WC) requirement for Rs.25B in Q1FY24 due to volatile prices; the overall consolidated number is around Rs.240B, out of which Rs.140B in India

·         EV clearance is not an issue for iron ore mining for Tata Steel; produced around 38 MT of iron ore in FY23 and aiming for 45-50 MT of iron ore over the next few years in line with the expected higher production target of steel

·         Now the goal is not to buy any iron ore or pellets from the market, which it had to do for the last 2-3 years occasionally for inorganic growth; but now after the acquisition and operationalization of Bhushan, NINL and Usha Martin facility, no need to buy iron ore and pellets from external sources

·         Normal EBITDA for TSN was around €70-140/T before FY22, having cash flow positive €200M on average and also PAT positive; the management is now seeking sustainable profitability after the Decarbonization process with some policy and funding support from the Dutch Government

Fair Valuations:

The present fair value of Tata Steel may be around 99 and Tata Steel may hover/scale around 114-131-151 by Mar 24-Mar’25.

Tata Steel reported a core operating EPS of Rs.21.29 in FY23 vs 47.52 in FY22 vs 19.12 in FY21 vs 8.67 in FY20 vs 18.97 in FY19 (pre-COVID), and 14.31 in FY18. FY22 was a golden year for all steel producers including Tata Steel on higher steel prices/realizations/spreads amid pent-up demand as the pandemic turned into endemic not only in India but almost globally. Spot steel prices were around CNY 4000 on average in late 2019 (pre-COVID), fall to around CNY 3264 in 2020 (COVID low), and then jumped to CNY 5903 in late 2021 as China was least affected due to COVID and the Chinese government also scaled up infra and defense spending to cope with subdued external demand. The same is also true for India.

But steel prices/spread began to fall in late 2022 and tumbled further after the Russia-Ukraine war erupted. This coupled with the concern of synchronized global macro headwinds and the Chinese ZERO COVID policy, resulted in sporadic lockdowns in the world’s biggest producer and consumer of steel. Prices of steel corrected from almost CNY 6000 to 3400 on the subdued recovery of China, weak external trade/export amid lingering macro-headwinds and ongoing Russia-Ukraine/NATO geopolitical tensions and various economic sanctions.

Although steel prices are now getting some boost on hopes & hypes of bug Chinese stimulus, in reality, China’s PBOC (monetary authority) and also government (fiscal authority) are quite cautious about ‘helicopter money’, but focusing on targeted monetary as well as fiscal stimulus to ensure growth/price/financial/social stability. Thus overall recovery in steel prices is quite muted so far, hovering around CNY 3600 amid subdued Chinese economic data and stimulus so far. China is now seeking the U.S. withdrawal of import duty (tariffs) on steel put by Trump (@15%).

Now considering all pros & cons of Indian as-well-as European operations as discussed above, present steel prices/realizations, synchronized global/local infra/EV stimulus, and also production constraints in India, Tata Steel reported a decline of around -55% core operating EPS in FY23 after FY22 Golden Year’ core operating EPS (from Rs.47.52 to 21.29) against our earlier estimate of around -60% decline.

But from FY24 onwards, Tata Steel may report around +15% CAGR (at least on an average) in core operating EPS (against a 30% average rate for the last 10 years/pre-COVID) supported by gradual higher production capacity and better operational cost control in India coupled with expected stable steel prices/realizations globally as worst of Chinese property crisis may be over. Also, after the Air India acquisitions, and the Adani saga, Tata Group is now a preferred bidder of various infra projects involving steel in India. Tata Steel is also guiding for higher production from FY24 onwards in India.

Now assuming +15% average CAGR (lower base effect, expected robust local/global demand, planned production hike, and cost-cutting), Tata Steel may report core operating EPS around Rs.24.48-28.16-32.38-37.24 in FY: 24-27. Further assuming an average core operating PE of 4, the fair value of Tata Steel may be around Rs.98.00-113-130-149 in FY: 24-27 (as per EPS/PE valuation metrics).

Similarly, if we consider BVPS/PB (Book Value/share) and OCFS (Operating Cash Flow/share) valuation metrics along with traditional EPS/PE, then the average fair valuation may be around Rs.99-114-131-151 for FY: 24-27. As the financial market usually discounts 1Y projected earnings in advance, the present fair value of Tata Steel may be around 99, and Tata Steel may hover/scale around 114-131-151 by Mar’24-Mar’25. And there is also an upside risk in Tata Steel's valuation as the projected core operating PE is around 4, a very low considering the stable prospect of high double digits CAGR in core operating EPS.

Conclusions:

Overall, Tata Steel U.K.(TSU) is still a headache, while India and even Netherlands' operation is now quite upbeat/sustainable/profitable. If Tata Steel can make a sustainable/decisive decision about TSU in the coming days (by Dec’23) as the management indicates, the ‘ghost of Chorus’ may not look so much scary in FY25.

Technical View:

Looking ahead, whatever may be the narrative, technically Tata Steel now has to sustain over 115 levels for 118/122-125/130 zones. On the flip side, sustaining below 114, Tata Steel may further fall to around 110/108-105/100-98/95, and further 87-82 levels. Investors may buy/accumulate around 102/95-87/82 levels.

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