Tata Steel Seen Reaching Target Price of Rs 247 by Prabhudas Lilladher

Tata Steel's Strong Cons. Operating Performance Driven by India

Tata Steel (TATA) has reported a strong consolidated operating performance, led by its India operations. Tata Steel India (TSI) EBITDA grew 36% year-over-year, driven by a robust 10.5% volume growth and a sharp rise in steel prices, which led to realizations increasing by approximately INR3,200 per ton quarter-over-quarter. Despite higher coking coal costs during the quarter, TSI delivered an EBITDA per ton of INR15,303 per ton, surpassing the previous estimate of INR14,610 per ton.

Tata Steel Europe (TSE) also returned to EBITDA positivity at USD2 per ton, supported by healthy demand at Tata Steel Netherlands (TSN) and improved realizations at Tata Steel UK (TSUK). The implementation of revised safeguard measures in the UK from July 2026 onwards is expected to support pricing and aid TSUK in achieving EBITDA breakeven during FY27. Furthermore, management expects EU steel prices to gradually move closer to the US levels, supported by lower imports and improving regional demand.

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Higher volumes, ongoing cost optimization initiatives, safeguard measures, and the phased implementation of the Carbon Border Adjustment Mechanism (CBAM) are expected to support a broader recovery in profitability across TSE during FY27. However, Tata Steel Netherlands (TSN) continues to face elevated environmental regulatory scrutiny at its IJmuiden facility, primarily related to emissions from legacy coke and gas plants. The company incurred over EUR20 million in penalties during FY26, while Dutch regulators are evaluating stricter actions, including potential permit revocations and accelerated closure timelines.

TSN is currently engaged with authorities to arrive at a feasible transition roadmap and is also exploring legal remedies. The company faces rising compliance challenges due to increasingly stringent Dutch steel slag disposal regulations that are tighter than prevailing EU norms. Although higher pricing will aid TSE earnings over FY26-28E, TSN's regulatory uncertainty and delay in power supplies at TSUK may continue to haunt TSE.

Outlook

At the current market price, the stock is trading at 6.8x/6.4x EV of FY27/28E EBITDA. We maintain an 'Accumulate' rating with a revised target price of INR 247 (INR 216 earlier), valuing at 7.5x EV/TSI EBITDA and 5x TSE EBITDA.

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