Brokerages raise target price on Tata Steel post-Q3 results

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Analysts have revised target price of Tata Steel after the company reported better-than-expected financial results for the quarter ended December 31.

The company on Tuesday reported a consolidated net profit of Rs 4,010.94 crore in Q3 on the back of increased income. It had posted a loss of Rs 1,228.53 crore in the year ago quarter. Total income rose to Rs 39,809.05 crore from Rs 35,613.34 crore a year ago.

Global brokerage firm JP Morgan upped the target price of Tata Steel to Rs 960 (from Rs 880 earlier), citing higher steel prices would translate into higher cash flows and lower debt for Tata Steel.

“Our overweight rating on Tata is driven by the company’s large India presence, where costs have declined over the past year (the entire capacity base is now 100% captive iron ore), which we believe will allow for a margin recovery once India demand normalises. Tata reported a large beat in Q3 and given the lagged impact of steel price hikes, and likely interim auto contract resets higher, we expect Q4 to be even stronger versus Q3. Net debt declined by Rs 10,300 crore QoQand stood at 11 quarter low,” the overseas firm said.

In its December quarter result, Tata Steel highlighted that it has completed the reduction of net debt by Rs 18,609 crore in the first nine months (April-December) of the current financial year. “During the third quarter, the company reduced its leverage by Rs 10,325 crore. As part of the continued de-leveraging strategy further deleveraging is being undertaken in Q4FY21 (January-March quarter of 2020-21 fiscal),” the company said.

Tata Steel Group is among the top global steel companies with an annual crude steel capacity of 34 million tonnes per annum (MTPA). It is one of the world’s most geographically-diversified steel producers, with operations and commercial presence across the world.

Shares of the company have already soared nearly 71% to Rs 700 during the past six months, while the BSE Sensex has gained 34% during the same period.

ICICI Securities also revised the target price upward for Tata Steel with a price target of Rs 617 (Rs 590 earlier). However, it downgraded the stock to ‘Reduce’ from ‘Hold’. “Q3FY21 adjusted consolidated EBITDA was lower than estimates mainly on Europe disappointment. Given the sharp run-up in carbon credit prices and high provisioning on account of the same in Q2/Q3FY21, there may be a possibility that enough war chest has been built to reduce the volatility of carbon credit prices from further impacting European EBITDA in the medium term,” the brokerage said.