Prabhudas Lilladher's research report on Tata Steel
We attended TATA Steel’s (TATA) analyst day. Management shared capacity allocation policy focusing on 1) expanding upstream steel capacity in India by 15mnt beyond FY25 to 40mnt, 2) augmenting downstream capacity with investment in CR, DI pipes, Tinplate, Tubes and Wires, 3) entering businesses like EAF based steel, niche new materials business with product offerings of composites and Graphene and 4) expand infrastructure and logistics to support the movement of expanded steel capacity. Capex intensity would almost double based on annual capex guidance of Rs100bn-120bn for next five years. However, strong earnings outlook and investment in high payback projects in India allays concerns associated with sharp rise in capex.
Outlook
This is vindicated by company’s guidance on maintain Net debt/EBITDA at 2x across the earning cycle. Underpinned by strong outlook on steel prices, comfortable B/S and impressive growth drivers, we remain positive on stock with Accumulate rating and TP of Rs1,400 (earlier Rs1,330), EV/EBITDA of 5.7x FY23e.
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