Tata Steel Gets Coverage Initiation With ‘Buy’ Rating As Nomura Expects India Growth And European Turnaround
Nomura has initiated coverage on Tata Steel Ltd. with a ‘Buy’ rating and a target price of Rs 215, implying an upside potential of 25%. The brokerage sees strong growth in India, turnaround in Europe and improving macros.
According to Nomura, the key drivers for this optimistic outlook include domestic focus amid strong demand dynamics, improved utilisation from Kalinaganar, a turnaround of European operations, a partial benefit of lower iron ore cost likely to persist after FY30F and valuation comfort. Tata Steel share price is expected to benefit from these factors.
Strong Growth In India
Nomura expects Tata Steel to strengthen its leadership in India over the next few years, driven by capacity expansion, efficiency gains, and sustainability initiatives. The brokerage projects higher asset utilisation (up to 96% by FY28F) and improved operating leverage to support margin expansion.
This growth is also expected to be driven by the increasing demand for steel in the Indian market. As the Indian economy continues to grow, the demand for steel is expected to increase, benefiting companies like Tata Steel. Additionally, the government’s focus on infrastructure development is also expected to drive the demand for steel.
Turnaround In Europe
Nomura also expects a turnaround in Tata Steel’s European operations. The brokerage believes that the company’s efforts to improve efficiency and reduce costs will pay off, leading to improved profitability in the region.
This turnaround is also expected to be driven by the improving demand for steel in Europe. As the European economy continues to recover, the demand for steel is expected to increase, benefiting companies like Tata Steel. Additionally, the company’s focus on producing high-quality steel products is also expected to drive sales in the region.
Improving Macros
Nomura also expects improving macros to benefit Tata Steel. The brokerage believes that the partial benefit of lower iron ore cost is likely to persist after FY30F, which will lead to improved profitability for the company.
This is also expected to be driven by the increasing global supply of low-cost iron ore. As more countries start producing iron ore, the prices are expected to come down, benefiting companies like Tata Steel that rely heavily on iron ore for their production.
Risks And Challenges
However, Nomura also listed some risks for Tata Steel posed by delays in Neelachal Ispat Nigam Ltd.’s (NINL, unlisted) expansion, weaker-than-expected demand growth, lower spreads, and sustained elevation in iron ore prices beyond FY30F.
These risks are significant and could impact the company’s profitability and growth. However, Nomura believes that the company’s strong fundamentals and improving macros will help it navigate these challenges.
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Valuation Comfort
Nomura derived a target price of Rs 215 for Tata Steel by applying a slightly higher-than-historical mid-cycle one-year forward EV/Ebitda of 6.9 times. The stock currently trades at 2.1 times P/B.
This valuation is based on the company’s strong fundamentals and improving macros. Nomura believes that the company’s valuation is comfortable and that the stock has the potential to jump 25% to reach the target price.
Investors can learn more about stock market valuation and how to analyze a company’s financials to make informed investment decisions.
Conclusion
In conclusion, Nomura’s initiation of coverage on Tata Steel with a ‘Buy’ rating and a target price of Rs 215 is a positive development for the company. The brokerage’s optimistic outlook is driven by strong growth in India, a turnaround in Europe, and improving macros.
However, investors should also be aware of the risks and challenges facing the company. By staying updated with the latest stock market news and trends, investors can make informed investment decisions and navigate the challenges of the stock market.
For more information on Indian stock market and how to invest in it, investors can follow reliable sources and learn from experts. Additionally, they can also learn more about stock market investing and how to make the most of their investments.
