BUY

Company Update Tata Steel Ltd Target Price

11th April 2024 Steel 150

TSN Announces Transformation Program to Boost Profitability

(CMP as of 9th April 2025)
Tata Steel Nederland (TSN) has announced a major transformation program to enhance CMP (Rs) 127
competitiveness in the backdrop of tightening steel spreads in Europe. The steel spot spreads
Upside/Downside (%) 19%
in Europe are under stress due to elevated energy and carbon costs over the last 2 years. The spot
spreads were at multi-year low in Q3FY25 at €170/t vs. historical average levels of €240/t. The High/Low (Rs) 185/123
company is focusing on cost reduction programs to offset the impact of lower spreads. The company Market cap (Cr) 1,58,790
is focusing on optimising ‘controllable cost’ parameters by maximising production efficiencies,
lowering fixed costs, and optimising product mix to focus on cash flow and EBITDA. Avg. daily vol. (6m) Shrs. 36,996,137
No. of shares (Cr) 1,248
To enhance profitability, TSN has announced a 1-year reorganization program. The company is
proposing to move to a new organisational structure that promotes agile ways of working and reduces
controllable costs by 15% against the FY25 levels. These controllable cost reductions will lead to Shareholding (%)
savings in excess of ~€500 Mn per annum. The controllable costs form ~40% of total cost, and they Jun-24 Sep-24 Dec-24
include operational controllable parameters (such as production efficiency, demurrage, BF rates, etc.)
along with employee costs. The €500 Mn cost saving benefit will start accruing from FY26, and Promoter 33.19 33.19 33.19
another €50-60 Mn over and above €500 Mn will flow in from FY27 onwards, as the full-year impact of FII 19.68 19.25 18.53
employee cost reduction will start only from FY27 onwards. Out of the €500 Mn cost saving, ~€180 Mutual Funds / UTI 10.32 10.62 11.69
Mn will be from employee cost saving and the balance €320 Mn from operational cost savings.
Financial Institutions 0.09 0.08 0.14
This reorganisation/transformation program is expected to lead to a loss of ~1,600 jobs (out of total
Others 36.72 36.86 36.45
base of 9,000 employees at Ijmuiden and total base of 12,000 employees at TSN, including
downstream units), mainly of management and other support functions. The redundancy costs
associated with employee reduction will come in FY26, and have not been finalised yet. The company Financial & Valuations
has now filed a ‘request for advice’ for the transformation plan to the Central Works Council, and trade Y/E Mar (Rs Cr) FY25E FY26E FY27E
unions have been informed. Over the following weeks, an effective and comprehensive consultation
Net Sales 2,16,756 2,32,167 2,44,765
process will be run on the proposed changes.
EBITDA 25,140 36,891 37,866
TSN decarbonisation plan: Unlike in the UK, the company will operate both the BFs at TSN and by Net Profit 5,322 12,757 13,041
2030, when the 1st DRI-EAF plant is in place, it will decommission only one of the two BFs, and the
EPS (Rs.) 4.3 10.2 10.5
2nd BF will continue to operate. The competitiveness will be built by the closure of one BF, and it will
lead to the elimination of around ~5 MT per annum of CO2 emissions. Funding support for PER (x) 29.8x 12.4x 12.1x
decarbonisation will involve a tripartite arrangement with the involvement of the European P/BV (x) 1.7x 1.6x 1.4x
Commission and the Netherlands government, along with Tata Steel. The company will come up with EV/EBITDA (x) 9.4x 6.3x 6.1x
a joint letter of intent by mid-CY25.
ROE (%) 6% 13% 12%
Impact of US tariffs negligible: Along with the above development, the management also
commented on the impact of the recent newsflow revolving around tariffs on Tata Steel. The US has Change in Estimates (%)
levied 25% tariffs on all steel imports, effective since 12th Mar’25. Separately, there is a 25% tariff on
Y/E Mar FY25E FY26E FY27E
all foreign Auto imports and reciprocal tariffs on the EU, India, and the UK, which have come into
effect. The impact of these tariffs is negligible on Indian and European operations. Indian steel Sales 0% -3% -4%
deliveries at ~20MT form ~70% of the consolidated sales volume of Tata Steel and are largely EBITDA 2% 16% 0%
consumed in the Indian market. Indirectly, a negligible quantity of 1-2kt of galvanised wires and 10- PAT (Attrib) -10% 24% -8%
15kt of select specialty steel on an annual basis is exported to the US. All these are <0.01% of FY25
steel deliveries in India. In the UK, ~88kt out of 3MT steel sales volume (~3% of sales volume) is
exposed to the US. In the Netherlands, 60- 70kt out of 6.8MT is exposed to the US, which is not Relative Performance
significant.
Cash breakeven at UK by Q2FY26: In the UK, the company has recently signed contracts with
suppliers for pickling lines towards green steel making project. The management reiterated cash brea-
keven in the UK business by Q2FY26.
Outlook: We cut our EV/EBITDA multiple for Indian operations from 7.0x to 6.5x, citing current macro
uncertainty and headwinds arising due to the US tariffs. We raise our EBITDA estimates for FY26 by
16% as we factor in lower coking coal prices and tweak down Europe Opex. Our FY27 EBITDA is
largely unchanged.
Valuation & Recommendation: We use SoTP and ascribe a 1-year Fwd EV/EBITDA multiple of 6.5x
(from 7.0x), 5.0x, and 4.0x to India standalone, other operations, and Europe, respectively, on Mar’27
EBITDA (From Dec’26) to arrive at our Mar’25 forward TP of Rs 150/share (from Rs 155). The TP Source: Ace Equity, Axis Securities
implies a 19% upside from the CMP, so we maintain our BUY rating on the stock.
Key Financials (Consolidated)
Y/E Mar (Rs Cr) FY24A FY25E FY26E FY27E
Net Sales 2,29,171 2,16,756 2,32,167 2,44,765
EBITDA 22,306 25,140 36,891 37,866
Net Profit (4,437) 5,322 12,757 13,041
EPS (Rs.) (3.6) 4.3 10.2 10.5
PER (x) -43.8x 29.8x 12.4x 12.1x Aditya Welekar
P/BV (x) 2.1x 1.7x 1.6x 1.4x Sr. Research Analyst
EV/EBITDA (x) 12.0x 9.4x 6.3x 6.1x Email: [email protected]
ROE (%) 3% 6% 13% 12%
Darsh Solanki
Source: Company, Axis Securities.
Research Associate
Email: [email protected]

1
Key Risks to Our Estimates and TP

• A decrease/increase in HRC prices vs. our assumption.

• Higher/lower coking coal costs than our assumptions.

• Resolution/un-resolution of the trade uncertainty arising due to tariff actions could pose an upside/downside risk to
our TP.

Change in Estimates

New Old % Change

FY25E FY26E FY27E FY25E FY26E FY27E FY25E FY26E FY27E

Sales 2,16,756 2,32,167 2,44,765 2,16,442 2,39,541 2,56,095 0% -3% -4%

EBITDA 25,140 36,891 37,866 24,607 31,721 37,981 2% 16% 0%

PAT reported (Attrib) 5,322 12,757 13,041 5,906 10,284 14,120 -10% 24% -8%

Source: Company, Axis Securities

2
Financials (Consolidated)
Profit & Loss (Rs Cr)
Y/E March FY24A FY25E FY26E FY27E

Total Operating income 2,29,171 2,16,756 2,32,167 2,44,765

Total Expenditure 2,06,865 1,91,616 1,95,276 2,06,899

EBITDA 22,306 25,140 36,891 37,866
Depreciation and Amortization 9,882 10,548 11,187 11,867
EBIT 12,424 14,592 25,703 25,999

Other Income 1,809 1,302 1,328 1,461

Share Of P/L Of Associates (Net of Tax) (58) 162 170 178
Less: Interest & Fin Chg. 7,508 7,402 7,576 7,576
Less: Exceptional Items 7,814 466 - -
Profit before tax (1,147) 8,188 19,626 20,063
Provision for Tax 3,763 2,866 6,869 7,022
Reported PAT (4,910) 5,322 12,757 13,041
Minority Interest (472) - - -
Attributable PAT (4,437) 5,322 12,757 13,041

EPS (Rs/sh) Basic (3.6) 4.3 10.2 10.5

DPS (Rs/sh) 3.6 3.6 3.6 3.6
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E March FY24A FY25E FY26E FY27E
Net Block 1,23,538 1,26,590 1,29,003 1,32,436
Other Tangible assets 7,586 7,586 7,586 7,586
CWIP + ITUD + Other Intangible Assets 46,301 48,701 51,101 53,801
Goodwill 5,745 5,745 5,745 5,745
Investments 6,258 6,423 6,597 6,779
Inventories 49,158 46,495 49,800 52,502
Trade Receivables 6,264 5,924 6,345 6,690
Cash / Bank balance 7,081 4,306 7,233 9,427
Retirement Benefit Assets 23 24 24 25
Misc. Assets 21,471 22,329 23,228 24,171
Total assets 2,73,424 2,74,123 2,86,662 2,99,162

Equity capital 1,247 1,247 1,247 1,247

Hybrid Perpetual Securities/ Share warrants - - - -
Reserves 90,788 91,620 99,886 1,08,436
Minority Interests 397 397 397 397
Total Borrowings 81,574 81,574 81,574 81,574
Def tax Liabilities 12,992 12,992 12,992 12,992
Retirement Benefit Obligations 3,366 3,535 3,711 3,897
Provisions 9,203 9,663 10,146 10,654
Trade Payables 35,435 33,515 35,898 37,846
Other Liabilities and Provision 38,421 39,579 40,810 42,119
Capital employed 2,73,424 2,74,123 2,86,662 2,99,162
Source: Company, Axis Securities

3
Cash Flow (Rs Cr)
Y/E March FY24A FY25E FY26E FY27E
Profit before tax (1,147) 8,188 19,626 20,063
Depreciation 9,882 10,548 11,187 11,867
Interest Expenses 7,508 7,402 7,576 7,576
Non-operating / EO item 5,994 (242) (254) (267)
Change in W/C 3,384 2,085 (275) 41
Income Tax (5,320) (2,866) (6,869) (7,022)
Operating Cash Flow 20,301 25,116 30,991 32,258
Capital Expenditure (18,207) (16,000) (16,000) (18,000)
Free Cash Flow 2,094 9,116 14,991 14,258
Other Investments 3,955 (166) (174) (182)
Investing Cash Flow (14,251) (16,166) (16,174) (18,182)
Proceeds from the issue of Equity shares - - - -
Proceeds / (Repayment) of Borrowings 1,230 - - -
Finance cost paid (8,145) (7,402) (7,576) (7,576)
Dividend paid (4,429) (4,491) (4,491) (4,491)
Other Financing activities 247 168 177 186
Financing Cash Flow (11,097) (11,724) (11,890) (11,881)
Change in Cash (5,048) (2,774) 2,927 2,194
Opening Cash 12,130 7,081 4,306 7,233
Closing Cash 7,081 4,306 7,233 9,427
Source: Company, Axis Securities

Ratio Analysis (%)

Y/E March FY24A FY25E FY26E FY27E
Operational Ratios
Sales growth (% YoY) -6% -5% 7% 5%
EBITDA growth (% YoY) -31% 13% 47% 3%
Op. profit growth (% YoY) -46% 17% 76% 1%
Net Profit growth (% YoY) -151% -220% 140% 2%
EBITDA Margin % 10% 12% 16% 15%
Net profit Margin % -2% 2% 5% 5%
EBITDA/t (Rs/tonne) 0% 0% 0% 0%
Tax Rate % -328% 35% 35% 35%
Efficiency Ratios
Total Asset turnover (x) 0.82 0.79 0.83 0.84
Sales/Gross block (x) 1.09 0.97 0.98 0.97
Sales/Net block(x) 1.89 1.73 1.82 1.87
Working capital/Sales (x) 0.09 0.09 0.09 0.09
Valuation Ratios
PER (x) -43.8x 29.8x 12.4x 12.1x
P/BV (x) 2.1x 1.7x 1.6x 1.4x
EV/Ebitda (x) 12.0x 9.4x 6.3x 6.1x
EV/Sales (x) 1.2x 1.1x 1.0x 0.9x
Dividend Yield (%) 2.4% 2.9% 2.9% 2.9%
Return Ratios
ROE 0.03 0.06 0.13 0.12
ROCE 0.07 0.08 0.14 0.14
ROIC 0.31 0.05 0.09 0.09
Leverage Ratios
Debt / equity (x) 0.95 0.94 0.86 0.79
Net debt/ Equity (x) 0.79 0.87 0.80 0.71
Net debt/Ebitda (x) 3.32 3.20 2.10 1.99
Interest Coverage ratio (x) 2.97 3.40 4.87 5.00
Source: Company, Axis Securities

4
 Tata Steel Price Chart & Recommendation History

(Rs)

Source: Axis Securities Research

Date Reco TP Research

08-Feb-23 HOLD 120 Result Update

04-May-23 HOLD 120 Result Update
26-Jul-23 HOLD 125 Result Update
18-Sep-23 BUY 145 Company Update
03-Nov-23 BUY 135 Result Update
29-Jan-24 BUY 150 Result Update
31-May-24 BUY 187 Result Update
02-Aug-24 HOLD 175 Result Update
08-Nov-24 BUY 175 Result Update
29-Jan-25 BUY 155 Result Update
11-Apr-25 BUY 150 Company Update

Source: Axis Securities

5
Axis Securities Limited is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector banks and has its various
subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are available
on www.axisbank.com.

Axis Securities Limited, is registered as a

• Stock Broker, Depository Participant, Portfolio Manager, Investment Adviser and Research Analyst with Securities and Exchange Board of India
• Corporate Agent with Insurance Regulatory and Development Authority of India
• Point of Presence with Pension Fund Regulatory and Development Authority
• Distributor for Mutual Funds with AMFI

Registration Details:

SEBI Single Reg. No.- NSE, BSE, MSEI, MCX & NCDEX – INZ000161633 | SEBI Depository Participant Reg. No. IN-DP-403-2019 | Portfolio Manager Reg. No.-
INP000000654 | Investment Advisor Reg No. INA000000615 | SEBI-Research Analyst Reg. No. INH000000297 | IRDA Corporate Agent (Composite) Reg. No. CA0073|
PFRDA – POP Reg. No. POP387122023 | Mutual Fund Distributor ARN- 64610.

Compliance Officer Details: Name – Mr. Maneesh Mathew, Tel No. – 022-68555574, Email id – [email protected].;

Registered Office Address – Axis Securities Limited, Unit No.002, Building- A, Agastya Corporate Park, Piramal Realty, Kamani Junction, Kurla (W), Mumbai – 400070.

Administrative office address: Axis Securities Limited, Aurum Q Parć, Q2 Building, Unit No. 1001, 10th Floor, Level – 6, Plot No. 4/1 TTC, Thane – Belapur Road, Ghansoli,
Navi Mumbai, Pin Code – 400710.

In case of any grievances please call us at 022-40508080 or write to us [email protected].

We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years.
However, SEBI, Exchanges, Clearing Corporations and Depositories etc. have conducted the routine inspection and based on their observations have issued
advise/warning/show cause notices/deficiency letters/ or levied penalty or imposed charges for certain deviations observed in inspections or in normal course of business, as a
Stock Broker / Depository Participant/Portfolio Manager. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our
certificate of registration been cancelled by SEBI at any point of time.

Investments in securities market are subject to market risks. Read all the related documents carefully before investing.
By referring to any particular sector, Axis Securities does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any
manner.

Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance
of returns to investors. None of the research recommendations promise or guarantee any assured, minimum or risk-free return to the investors. Our research should not be
considered as an advertisement or advice, professional or otherwise. This research report and its respective content by Axis Securities made available on this page or
otherwise do not constitute an offer to sell or purchase or subscribe for any securities or solicitation of any investments or investment services for the residents of Canada and /
or USA or any jurisdiction where such an offer or solicitation would be illegal.

Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. Derivatives are a sophisticated investment device.
The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts.

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future
performance. Information, opinions and estimates contained in this report reflect a judgment of its original date of publication by ASL and are subject to change without notice.
The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial
instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments.

The information and opinions in this report have been prepared by Axis Securities and are subject to change without any notice. The report and information contained herein is
strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person
or to the media or reproduced in any form, without prior written consent of Axis Securities. The report must not be used as a singular basis of any investment decision. The
views herein are of a general nature and do not consider the risk appetite, investment objective or the particular circumstances of an individual investor. The investor is
requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before
investing.

While we would endeavour to update the information herein on a reasonable basis, Axis Securities is under no obligation to update or keep the information current. Also, there
may be regulatory, compliance or other reasons that may prevent Axis Securities from doing so. Non-rated securities indicate that rating on a particular security has been
suspended temporarily and such suspension is in compliance with applicable regulations and/or Axis Securities policies, in circumstances where Axis Securities might be
acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained in good faith from public sources and sources believed to be reliable, but no independent verification has been made nor is its
accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or
solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may
receive this report at the same time. Axis Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment,
legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and
opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial
positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently
evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. Axis Securities
accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance.
Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from
those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Axis Securities or its associates might have
managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past
twelve months. Axis Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months
from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage
services or other advisory service in a merger or specific transaction. Axis Securities or its associates might have received any compensation for products or services other
than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. Axis Securities encourages
independence in research report preparation and strives to minimize conflict in preparation of research report. Axis Securities or its associates or its analysts did not receive
any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither Axis
Securities nor Research Analysts and / or their relatives have any material conflict of interest at the time of publication of this report. Please note that Axis Securities has a
proprietary trading desk. This desk maintains an arm’s length distance with the Research team and all its activities are segregated from Research activities. The proprietary
desk operates independently, potentially leading to investment decisions that may deviate from research views.

6
 Digitally signed by
NEERAJ NEERAJ CHADAWAR
CHADAWAR Date: 2025.04.10
21:06:10 +05'30'
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

Research Analyst may have served as an officer, director or employee of subject company(ies). Axis Securities or Research Analysts or their relatives do not own 1% or more
of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of Axis
Securities and Axis Securities as an entity are engaged in various financial service businesses, they might have financial interests or actual/beneficial ownership of one percent
or more or other material conflict of interest in various companies including the subject company/companies mentioned in this report. Axis Securities may have issued other
reports that are inconsistent with and reach different conclusion from the information presented in this report. Certain transactions -including those involving futures, options
and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centres on
studying charts of a stock'sprice movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a
company's fundamentals.

We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in,
and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such
company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of
Research Report or at the time of public appearance. Axis Securities may have proprietary long/short position in the above mentioned scrip(s) and therefore may be
considered as interested. This should not be construed as invitation or solicitation to do business with Axis Securities. Axis Securities is also a Portfolio Manager. Portfolio
Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research
recommendation.

RATING SCALE: Definitions of ratings

Ratings Expected absolute returns over 12 – 18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock, but we refrain from assigning valuation and recommendation.

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward-looking estimates, valuation or recommendation for the stock

Note: Returns stated in the rating scale are our internal benchmark.