Tata Steel- What’s the brokerage view after it announced plans to invest in UK’s Port Talbot plant-
时间:2024-06-26 08:02:58 阅读(143)
Tata Steel has announced a plan to invest in a 3mtpa EAF based steel capacity at Port Talbot in the UK. The project will cost £1.25 billion ($1.55bn). Of this the Tata Steel will invest £750 million and UK government will provide £500 million support.
Jefferies: Jefferies has a Buy rating on the stock after the announcement with a price target of Rs 145 with room for 10% upside. The brokerage currently estimates Tata Steel to generate free cash flow (post interest payment) of $1.4-1.9 billion annually in FY25-26e. Jefferies believes while the overall cash outflow is manageable and the transition to a new EAF facility could improve profitability as well as pave the way for decarbonization. They see the decision to invest in UK based steel-making as a missed opportunity to reduce exposure to historically high-cost low-margin geography.
Prabhudas Lilladher: According to them the Tata Steel UK (TSUK) transition is EPS accretive given current cash losses will end, as company will import substrate instead of producing at old facilities. According to them the one-time cost will exist, but it is expected to be in better situation than earlier case of recurring cash burn. Volatility in coking coal prices is unlikely to directly affect earnings of Tata Steel UK and the potential fall in energy costs, as UK moves towards renewable sources is seen accretive to the stock price. Prabhudas Lilladher revised the FY25E EBITDA estimates upwards by 5% to Rs 41,100 crore and introduced FY26E earnings estimates. They are maintaining ‘Buy’ at revised target price of Rs 144 (Rs 137 earlier) assigning EV/EBITDA multiple of 5x for FY25E EBITDA for TSE.
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