Global brokerage firm Nomura has reaffirmed its 'Buy' rating on Tata Steel Ltd but has adjusted its price target downwards to Rs 210 from the previous Rs 240. This revision primarily reflects expectations of reduced FY28-29 Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) for the company's European operations.
European Challenges Impact Outlook
The cut in the target price is attributed to anticipated lower utilization rates and increased costs within Tata Steel's European business. These challenges stem from project delays and the ongoing geopolitical instability in the West Asia region. Nomura also rolled forward its valuation estimates to December 2028, contributing to the revised outlook.
In the UK, Tata Steel is investing £1.25 billion, supported by government funding, to transition its Port Talbot plant to an Electric Arc Furnace. This move aims to cut emissions by up to 85% and establish it as a green steel hub. However, Q3 UK realisations were guided to rise by £28-30 per tonne, with volumes remaining below the breakeven level at 0.38 million tonnes. Nomura expects a marginal improvement in Ebitda per tonne loss from £141 to £131 in Q3.
Similarly, the Netherlands' IJmuiden plant is undergoing a €2 billion decarbonisation plan to shift to hydrogen-based steelmaking. Q3 product prices there are expected to be €30 per tonne higher, though an adverse product mix is projected to reduce realisations by €11 per tonne sequentially.
India Operations Remain Strong
Despite the European headwinds, Nomura's estimates for Tata Steel's India business remain unchanged. The company's India management anticipates Q3 realisations to increase by Rs 3,500-3,600 per tonne sequentially, driven by auto contract resets. This positive impact is partly offset by a projected $15 per tonne rise in coking coal prices.
Nomura estimates India's Ebitda per tonne to climb by Rs 1,850 quarter-on-quarter (QoQ) to Rs 18,600, up from Rs 16,750 in Q2. The Kalinganagar greenfield expansion is strengthening Tata Steel's value-added and automotive steel portfolio, while captive iron ore and coal assets ensure cost leadership for its over 27 MTPA capacity in India.
Strategic Iron Ore Monetization
Nomura noted that near-term Ebitda would include higher iron ore sales, which are less margin-accretive than steel volumes. With a significant portion of iron ore reserves potentially being lost due to auction-free reserves, monetizing ore makes sense in the near term. However, the brokerage suggested that better capacity planning could have enabled more captive use of these resources.
The NINL 4.8 mt expansion is on track for FY30E, with one rebar mill expected to come online earlier. Iron ore sales are guided to reach 10 mt for FY27E (up from 2 mt last year) and 14-15 mt for FY28E.
Disclaimer: This article provides market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.