1:10 Split, 1:2 Bonus, 30 Dividends: Is Tata's Steel Stock HOT To BUY After 18% Dip In 6 Months; Rs 175 Target

Tata Group-backed iron and steel giant, Tata Steel has corrected sharply from its 52-week high and given zero returns in past six months. Brokerages recently highlighted that Europe's business continues to drag Tata Steel's growth. And despite this, two brokerages Axis Securities and BOB Capital Markets have upped their rating on Tata Steel from HOLD to BUY.

Axis believes that the decarbonisation Capex requirement at European operations could drag faster capacity expansion in India beyond KPO-II. While BOBCAP added that structural earnings growth from TSK-2 expansion and TSUK transition is intact for the company, making it attractive.

Tata Steel Share Price:

Last week, on December 6th, Tata Steel's stock price ended at Rs 148.25 apiece, with a market cap of Rs 1,85,067.04 crore. At the current price level, the stock is down by 17.73% in a six-month period. The stock price was at Rs 180.20 six months ago on June 10, 2024. The stock has also plunged sharply from its 52-week high of Rs 184.60 apiece, creating a buy-on-dips opportunity.

The metal giant holds a strong record of dividends, while it has delivered 1 bonus issue and 1 stock split in its 24 years of performance.

Bonus Issue: The first ever bonus issue by Tata Steel was of a 1:2 ratio and its ex-date was on August 12, 2004. The ratio meant that Tata Steel delivered 1 free share on the existing 2 shares.

Stock Split: The sub-division of Tata Steel stock took place in 2022 in the ratio of 1:10 and its ex-date was on July 29 of that year. The face value of Rs 10 each of Tata Steel was split to Rs 1 each. This was also its first time splitting.

Dividends: Since May 2001, Tata Steel stock has delivered about 30 dividends, as per Trendlyne data. In the past 12 months, the stock has distributed about Rs 3.60 per share dividend. Its current dividend yield is at 2.43%.

BUY Tata Steel Stock:

Both Axis Securities and BOB Capital Markets have recommended BUY on Tata Steel, while their target price is Rs 175.

BOBCAP in its note said, "We maintain our TP at Rs 175 as we now base our valuation on FY27 earnings to account for structural earnings expansion and discount it back to Dec'25 (from Jun'25), We continue to apply 1Y fwd target EV/EBITDA of 6.5x for India operations and 5.5x for Europe. With a 17% correction since our downgrade to HOLD in Jun'24 and a 16% upside to our TP, we upgrade the rating on the stock to BUY from HOLD. Timely delivery on TSK-2 expansion, UK transition and initiation of new growth projects (NINL expansion) are key triggers for the stock."

Meanwhile, Axis Securities said, FY26 is likely to be a Capex light for Tata Steel as KPO-II Capex will be near completion in FY25 and Capex for UK EAF transition for the next 18-24 months will not be significant and will pick up only towards the last 12-16 months. Capex at TSN for the DRI-EAF green steel transition will begin only in the next 12 months. WC management and De-leveraging (target of $1 Bn/annum) will remain critical in FY26 as Capex intensity reduces before it picks up again in FY27. Net debt has already increased to Rs 88,817 Cr as of Q2FY25 with Net Debt to EBITDA jumping to 3.41x from 3.31x at the end of FY24.

"We upgrade to BUY from HOLD as we roll forward our valuation to Sep'26," Axis Securities note said. The target price set by the brokerage is also Rs 175.

Tata Steel, with an annual crude steel capacity of 35 million tonnes per annum (MnTPA), is one of the world's most geographically diversified steel producers.