Tata Steel share price target ; Tata Steel share analysis

 

Tata steel is one of the largest steel company in India,having a share of 12.49% in the total Nifty Metal index. The company has a market cap of Rs.1,85,505 Cr. as found in the Screener website.The company is one of the world's geographically diversified producers. In this article let us understand in depth about the company and the industry analysis.

About the company:

Tata Steel is Asia's first integrated steel company which was established in 1907,in India.The company has its operation not only in India,but also in Europe,U.S. and also in South-East Asia.Even in these places also,the company is one among the largest players present in those respective companies.

• The Indian Product Portfolio: The Indian product portfolio of the company is divided into 4 major segments which are: 

1. Automotive and Special products
2. Industrial Products,Projects and Exports
3. Branded Product and Retail
4. Services and Solution

• Production Capacity: This company possess and operate mines.This obviously helps them to reduce their costs.The company has an annual crude steel capacity of 34 million tonnes per annum [MnTPA] of which 20 MnTPA is from Indian operations alone.The company claims that the raw material operations spread across India and Canada helps them to be self-sufficient.

It has an employee base of around 65,000 that includes the employees in all it other subsidiaries,joint ventures,etc.

Industrial Outlook:

India is the second largest producer of crude steel as on January-2021.The domestic crude steel capacity expanded from 137.97 million tonnes [MT] in 2017-18 to 154.06 MT in 2021-22.So it has expended by 3.7% compounded annual growth rate [CAGR] during this period.

Similarly the crude steel production grew at an annual CAGR of 4.2%.

National Steel Policy[NSP] 2017:  This Policy is aimed at increasing the domestic production and consumption of steel. The policy projects a crude capacity of 300 MT ,the production of crude steel to be 255 MT and also aims at increasing the per capita steel consumption to 160 kgs by 2030.

If you wish to know more on other actions taken by the government,for the development of steel industry, you may click here.

The steel demand in India is expected to increase at a significant rate and this was stated by the company in their investor presentation. So the overall view of the steel industry in India is very positive.But there are threats too.

The main threat is the geopolitical issues.That is because,the commodity prices are highly affected due to these geopolitical issues. These factors can even affect the profitability of the company.However all these issues need not be prolonged.Another issue is that,if all companies started to increase their production,to compensate the rising demand for steel, this can even lead to over supply which can lead to decline in prices and thus the profitability. So exports are also very important.

Now let us jump into the fundamentals of the company.

Fundamentals of the company:

The company's fundamentals are as follows  [as on 6th March,2024] :

• Market-cap :             1,85,505 Cr.
• Book value :             95.9
• Price to book value: 2.06
• ROCE :                     12.6%
• ROE:                         7.28%
• Debt to equity:          1.01
• DMA 200 : Rs. 128
• RSI: Rs.63.7
• Operating Profit Marigin:9.70%
• Stock P/E : 95.9
• Industry P/E:17.1

The company has increased its profit margins from 8% in September Quarter of 2023-24 to 11% December quarter of the same financial year[FY]. The company has increased the sales volume for nearly 2 times in India.The company's net debts has increased from Rs.67,810 Cr. to Rs.77,405 Cr..

This is because the company has increased the capex and also has commissioned to set up a 5 MnTPA plant at Kalinganar. It is said that this going to be the largest blast furnace in India.

The company has developed more than 500 new products,in the last five years, and have also filed more that 100 patents for the same period.The company's downstream product segment includes pipes and tubes,carbon spring wire,bearings,tinplate and ductile iron plate.

The other supplies of the company include hot-rolled coils,cold-rolled coils and galvanized steel.

Conclusion:

Since steel is a commodity,the value of it should increase with an increasing inflation.This can help the company to earn more.However the input costs also can rise due to inflation.But here we should remember that this company is 'vertically integrated',that is,all the activities from mining till the completion of production all activities are undertaken by the company itself.So their input cost need not necessarily increase at the same level of inflation. This company is an asset intensive company.The company is fundamentally strong.However it will take a few years to give a decent returns.Even being an asset intensive company,it pays a decent amount as dividends.If I buy,I would hold it upto Rs.500.But the stock prices need not necessarily reach that level.Nobody can guarantee anything about the future.So I request the readers to do a proper research about the company before buying their shares.

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