Strategic expansions in pipeline to drive long term growth …
About the stock : Tata Steel (TSL), part of the TATA group, is one of the world’s most geographically diversified steel producers with operations across regions
• Annual Crude Steel Production Capacity: India- 27.4 million ton (MT), Netherland- 7 MT, UK- 3.2 MT (upcoming), and Thailand- 1.7 MT.
Q 1F Y2 7 Result : Tata Steel reported steady performance in Q1’27. Consolidated topline stood at ₹60,794 crore (up 14% YoY) with steel sales volume of 7.3 MT (up 2% YoY). Reported EBITDA stood at ₹9,264 crore with EBITDA margins at 15.2% (down 30 bps QoQ). Indian operation EBITDA/ton stood at ~₹18.7k vs ₹15.9k in Q4’26. PAT (post minority interest) at ₹2,318 crore (up 12% YoY).
Investment Rationale:
• India: Capacity expansion to capitalise on rising domestic steel demand : Tata Steel, a century-old steel major, is targeting ~40 MTPA capacity by 2030 to meet India’s growing steel demand, with recently commissioned 0.75 MTPA EAF facility at Ludhiana, taking India crude steel capacity to 27.4 MTPA. Key projects include: (i) a 4.8 MTPA Neelachal expansion (capex of ~₹33,873 crore), targeted by 2029 (ii) a 2.5 MTPA finished steel expansion at Meramandali; 3) a strategic partnership with Lloyds Metals & Energy to develop an iron ore hub in Gadchiroli, alongside a 6 MTPA greenfield steel plant in Maharashtra. Thus, we expect India sales volumes to register a 7% CAGR over FY26-28E, reaching ~26 MT by FY28E.
• Europe – EAF transition strategy to drive long – term profitability : TSL is restructuring its European operations with focus on improving profitability. In UK, it is undergoing a 3.2 MTPA Electric Arc Furnace (EAF) project, targeted for commissioning by 2027, supported by a £500 million government grant under £1.25 billion capex. Meanwhile, in Netherlands, one blast furnace is planned to replace with a DRI + EAF configuration by 2030, supported by up to €2 billion funding from Dutch government.
• Value addition and cost optimisation to drive earnings growth : TSL’s EBITDA improved to ~₹18.7k/ton in Q1’27 from ~₹15.9k/ton in Q4’26, supported by ~₹6k/ton rise in NSR partly mitigated by increase in coking coal costs and freight expenses arising from West Asia conflict. Going forward, it expects NSR to soften by ~₹1.5k/tonne in Q2’27 due to seasonal slowdown during monsoon, while coking coal costs will be up by ~$5/ton QoQ. However, TSL’s targeted ~₹7,100 crore cost optimisation for FY27, thereby partly offsetting headwinds. Thus, we expect India EBITDA/tonne at ~₹18k/~₹19.3k in FY27E/28E, respectively. Despite iron ore lease getting expired by 2030, TSL aims to meet ~50% of its iron ore requirement through captive mines beyond 2030 through new mines, thereby affirming its raw material security. Moreover, the EU import quota restrictions are expected to support profitability across its Europe operations. Overall, we expect consolidated EBITDA to grow at a ~24% CAGR over FY26-28E.
Rating and Target Price : We maintain a positive view on Tata Steel, driven by strategic expansion, higher value-added product offerings, and continued cost optimisation initiatives. Moreover, the EU import-control measures are expected to support profitability across Europe operations. Accordingly, we retained our BUY rating on stock with SOTP-based revised target price of ₹240.
