Third Buy rating for this Tata stock in less than a week: Know details
Tata Steel is emerging as a darling of brokerage firms. Indian brokerage firm Motilal Oswal becomes the third agency to assign it a Buy rating after Nomura and InCred Equities to assign a Buy rating with a target price for this stock.
Kolkata: Tata Steel is in the news on D Street. Prominent Indian brokerag Motilal Oswal emerged as the third agency to assign a buy rating on this stock. Nomura and InCred Equities did so over the oast few days. Motilal Oswal has moved the moved the stock from "neutral" to "buy". The three agency recommendations followed closely one after the other. Nomura made its recommendation on October 23, and on October 27 InCred Equities revised their position from "reduce" to "add".
Motilal Oswal announced a target price of Rs 210 for the Tata group major. It was Rs 180 earlier. On Tuesday, October 28, the Tata Steel stock was trading at Rs 181.03, up Rs 4.37 (or 2.47%) a few minutes after 2 pm. Incidentally, as many as 36 analysts who track Tata Steel, 25 have given a "Buy" recommendation while four want investors to Sell and seven say a "hold" is prudent.
Why is Motilal Oswal bullish on Tata Steel?
Motilal Oswal is bullish o the stock substantially due to the robust domestic outlook of the sector and the company. It also mentioned that a breakeven in the company's European business will help the growth in consolidated earnings. Tata Steel, reputed to be one of the most efficient steel producers in the world, is expanding production capacity in the domestic market to take advantage of the rising domestic demand, thanks to the infrastructure push in the country. The company has now set a target of overall capacity of 40 MTPA (million tonnes per annum) by FY30. The company's current production capacity is 26.5 MTPA.
"While near-term challenges persist due to global uncertainties around tariff escalations, the long-term outlook remains strong. The Indian business is expected to remain strong and an improvement in Europe will help earnings," Motilal Oswal mentioned it its note.
The European business
Tata Steel is undergoing a change in strategy in Europe. Steel making is traditionally known to be a polluting operation but Tata Steel is reinventing itself as a green steel manufacturer. Reports indicate that in Europe it is moving in the direction of breakeven. The losses that it made at the operating profit level (before Interest, Tax, Depreciation and Amortisation or EBITDA) have shrunk from $76 per tonne to $8 per tonne.
Tata Steel is shutting down a blast furnace in the UK and is pumping up the operations in the Netherlands. Motilal Oswal has argued that this is going to improve its financial further. It has mentioned that the consolidated EBITDA level can jump from Rs 8,376 now to Rs 13,000 by FY28.
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