BusinessWhy is Tata Steel the stock to watch out...

Why is Tata Steel the stock to watch out for currently?


Tata Steel is afully integrated steel player, from mining to manufacturing to finished marketing products. It is also the world’s most geographically diversified steel producer.Tata Steel is also the 10th largest steel producer globally, with an annual crude steel production of 34 million tonnes per annum. 

With its subsidiaries, associates, and joint ventures, its operations are spread across five continents with an employee turnover of 65,000. Tata Steel’s manufacturing and downstream facilities are in India, the United Kingdom, the Netherlands, and Thailand, while its raw material industries are in India and Canada.

Its Indian plants, located primarily in Jamshedpur, Kalinganagar and Dhenkanal, have a capacity of 20 MnTPA. They are better-run plants with higher margins and low operations costs thantheir European or Southeast Asian operations. Furthermore, in India, Tata Steel possesses and operates captive mines that ensure cost-competitiveness and production efficiencies. 

It meets 100% of its iron ore requirements in India through its captive iron ore mines and about 21% of its coal requirements from its captive coal mines. In FY22, the Indian operations accounted for 62% of overall sales volumes for Tata Steel.These aspects give Tata Steel an edge over many of its competitors. This has resulted inexcellent Tata Steel share price performance in the last couple of years. The stock has delivered 61.32% returns to shareholders.

Though the Tata Steel share is down 13%, analysts, especially those at ICICIdirect, believe it is likely to continue its good performance as coking coal prices have softened. It is one of the raw materials used in the production of steel. The benefit of lower coking coal costs is likely to feed through in the cost base by September 2022 for Tata Steel India operations and by Q3FY22 for Tata Steel European operations.

Another positive for the company is that its subsidiary Tata Steel Long Products, has recently completed the acquisition of NeelachalIspat Nigam Limited. At this plant, Tata Steel is planning to ramp up production and capacity to 80-100 kilotonnes a month by March 2023.Moreover, to bring synergy and cut costs, Tata Group has announced it will merge seven companies into Tata Steel. This will likely be another booster for the stock in the long term.

The high debt pile has been a big concern for Tata Steel shareholders. However, analysts believe Tata Steel remains committed to its annual deleveraging target of $1 billion (about Rs. 8,200 crore) in line with its capital allocation strategy to reduce debt.ICICIdirect has a ‘buy’ rating on the NSE Tata Steel with a target of Rs. 130, based on the sum of the parts (SoTP) valuation.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. I-Sec is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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