Tata Steel stock zooms on strong Q4

Our Bureau Chennai | Updated on May 06, 2021

Analysts expect even better performance in H1 FY22 due to firm metal prices

Shares of Tata Steel hit a fresh high at ₹1,128.80 on the BSE, after the company came out with a strong set of numbers. Following the results, most analysts increased the target price, as Tata Steel reported better-than-expected performance on most verticals and remained strong on debt reduction.

Highest quarterly profit

According to foreign brokerage CLSA, Tata Steel has reported its highest-ever standalone profitability at ₹27,800 crore (4 per cent higher than its estimate), partly boosted by inter-company iron sales. Net debt fell to ₹81,800 crore (after adjusting for an export advice of ₹6,400 crore), down ₹23,000 crore y-o-y. “With a strong steel price and EBIDTA generation outlook, we believe FY22 deleveraging is likely to be higher than the company’s guidance (of over $1 billion)”.

Tata Steel on Wednesday posted a consolidated net profit of ₹7,162 crore for the quarter-ended March 2021, as against net loss of ₹1,615 crore in the year-ago quarter. During January-March 2021, the company’s income from operations was up 39 per cent at ₹48,951 crore (₹35,108 crore).

Debt to decline

According to JP Morgan, “Given the large price hikes seen in April and May, H1FY22 should be very strong. Net debt declined ₹10,700 crore q-o-q and stood at ₹75,400 crore.”

DPS (dividend per share) of ₹25 was an all-time high, said JP Morgan and added: "We highlight that EBITDA/t and EBITDA were ahead of our forecasts across India and Europe.”

JP Morgan retained its ‘Overweight’ stance with a price target of ₹1,250.

The management has maintained its net debt reduction guidance of $1 billion+ for FY22. This appears a bit conservative given the MTM earnings and accelerated capex, said ICICI Securities.

The extent of deleveraging is creating an upward bias for multiples for the entire sector, given the significantly reduced loss probability.

“We maintain ‘Hold’ with a revised target of ₹1,020/share at 0.9x FY23E P/B – with significantly reduced loss probability, the increase in valuation band is only a matter of time in our view.”

Another foreign brokerage Jefferies also maintained its ‘Buy’ on Tata Steel with a price target of ₹1,125.

Published on May 06, 2021

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