TATA Steel Limited, a century-old company, is one of the largest steelmakers in the world, with operations primarily in India, Europe, and Southeast Asia. The company is present across the entire value chain of steel manufacturing,mining iron ore and coal, processing raw materials, and producing and distributing finished products.
The company has an annual steel production capacity of 34 million tons per annum. It is also expanding the power as the demand has increased. Presently, it sources over half its revenue from India, followed by Europe, which contributes about one-third of the revenue. Asia and the rest of the world are the following biggest geographical contributors.After the pandemic, as the steel demand peaked, leading to record prices, TATA Steel share price has also surged.
As of June, the stock has delivered 114% returns. Analysts believe the TATA Steel share rally is far from over, and it may move higher.
Analysts at ICICIdirect have a BUY rating on the stock with a 12-month target price of Rs. 1,600, based on the sum of the parts valuation. Going by the current prices, the potential upside stands at 56%. According to the broker, key triggers for future price performance of NSE TATA Steel are:
-Tata Steel aims to double Indian operations crude steel production capacity to 40 million tonsby 2030
-The NeelachalIspat Nigam share purchase agreement is completed, and the transaction is expected to be closed in Q1FY23.
Latest financial performance
The company said their consolidated revenue for the March quarter was Rs. 69,324 crore, up by 39% year on year and 14% quarter on quarter. It was higher than ICICIdirect’s estimates. Consolidated net profits for the quarter were at Rs. 9,835 crore, up 37% YoY and 2% QoQ, broadly in line with estimates.
A SWOT analysis done by ICICIdiret is heavily skewed in favour of positive attributes. The broker counts 14 strengths against four weaknesses. It finds three opportunities compared to one threat that may derail the momentum.
Strengths include High Piotroski Score, strong financials, high earnings per share growth, improving return on capital employed, and return on equity, which shows efficiency in using the money to deliver profits. Other strong points are reduction in debt, strong cash generation, and foreign investors’ increasing shareholding.
On the other hand, weaknesses are primarily technical, that is, based on recent TATA Steel share price NSE movements. It includesa negative breakdown below a first support level, a share price near 52 week low, and Mutual Fund selling stock in the last quarter.
Opportunities lie in TATA Steel being a company with a low price to earnings, a high analyst rating with over 20% potential upside, and a high RoCE. A single threat is increasing non-core income.