Why To Buy The Shares of Tata Steel? Here’s What ICICI Direct Explains

Nifty Metal has risen 73.15 percent year to date, and it has climbed more than 75 percent in the previous year, indicating that metal stocks are in high demand. However, such outstanding results are difficult to forecast. Today, however, the brokerage company ICICI Direct is optimistic on the shares of Tata Steel Ltd. The brokerage forecasts the stock to reach a target price of Rs. 1400 in 12 months, a rise of about 20% from its current market price of Rs. 1170.

The brokerage’s take on Tata Steel Ltd

Today, ICICI Direct based on its research analysis has reported that "Over the last few days, Indian steel prices have witnessed a softening trend. Domestic HRC prices have declined from Rs. 67500/tonne as of November 30, 2021 to Rs 65500/tonne on December 09, 2021. Along with steel prices, prices of key inputs such as coking coal have also witnessed a falling trend. During November 2021, coking coal prices (CNF India, Australia premium hard coking coal) were at ~US$318/tonne compared to ~US$403/tonne in October 2021, registering a decline of 21% MoM."

As per the brokerage "China recently cut its reserve requirement ratio by 50 bps to boost its economic growth. This cut in reserve requirement ratio for major commercial banks will be effective from December 15, 2021. This step to cut the ratio augurs well for Chinese steel demand, in general. Chinese finished steel exports declined for a fifth consecutive month in November 2021, falling 3.1% MoM to 4.4 MT (a new monthly low for CY21). Monthly Chinese steel exports have declined from 6.5 million tonnes (MT) in June 2021 to 4.4 MT in November 2021."

The brokerage has claimed that "Over the last six months, Tata Steel's net debt/equity has improved from 0.98x at the end of FY21 to 0.79x at the end of H1FY22. Similarly, Tata Steel's net debt/EBITDA has improved from 2.44x at the end of FY21 to 1.21x at the end of H1FY22."

Here’s why ICICI Direct is bullish on the shares of Tata Steel

The brokerage claims that "India's share in Tata Steel's overall consolidated production capacity has risen from 29% in 2010 to 57% in 2020 and is likely to reach 73% by 2030. For FY22E, Tata Steel is targeting over US$2 billion gross debt reduction wherein it will prioritise offshore debt repayment. TSL's share price has given a return of 93% over the last 12 months (from ~Rs 610 in December 2020 to ~Rs 1178 levels in December 2021). We value TSL at Rs. 1400, based on SoTP valuation. We maintain our BUY rating on the stock."

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.