InCred Equities upgrades Tata Steel to 'Add'; stock hits fresh 52-week high

InCred Equities upgrades Tata Steel: Domestic brokerage InCred Equities has upgraded Tata Steel to an ‘Add’ rating from ‘Reduce’, citing three key triggers – an anticipated recovery in Europe, resilience in the India business, and attractive valuations. 

 

The brokerage has set a target price of ₹224, valuing the stock at 2.5x FY27F price-to-book value (P/BV), implying a potential upside of nearly 29 per cent from current levels.

 

On the bourses, Tata Steel shares rose as much as 1.91 per cent to hit a fresh 52-week high of ₹177.85 per share. At 2:11 PM, Tata Steel share price was trading 1.23 per cent higher at ₹176.65 per share. In comparison, BSE Sensex was trading 0.62 per cent higher at 84,730.38 levels.

 

 

European recovery on the horizon

 

Analysts at InCred Equities expect Tata Steel to benefit majorly from a rebound in steel demand across Europe, supported by large-scale post-war reconstruction. As the Russia-Ukraine conflict nears a possible negotiated conclusion, reconstruction spending – estimated at over$800 billion – is likely to fuel a prolonged upcycle in infrastructure, energy, and manufacturing sectors across the continent.

 

Adding to this optimism, the European Union’s decision to halve tariff-free steel import quotas and double out-of-quota duties to 50 per cent by mid-2026 is expected to tighten supply and lift regional prices. These factors, the brokerage noted, should aid Tata Steel Europe’s realisations and profitability, helping offset recent weakness caused by subdued spreads. 

 

Domestic business remains solid

 

Analysts highlighted the resilience of Tata Steel’s India operations, supported by protectionist policies, strong demand, and government-led infrastructure spending. The domestic business, it said, provides visibility through FY30, ensuring stable profitability even amid potential cost pressures following the auction of captive iron ore mines post-FY30 under the MMDR Act.

 

The company’s focus on deleveraging and improving realisations could lead to an estimated ₹3,500 crore Ebitda uplift by FY27F, aided by operational efficiency and recovery in Europe. However, analysts at InCred Equities also cautioned that consensus estimates appear optimistic given that European spreads remain at multi-year lows. It projects FY26F Ebitda margins of ~9.6 per cent, return on equity (RoE) of ~5.8 per cent, and an enterprise value (EV)/Ebitda multiple of 10-11x, with a net gearing ratio around 65 per cent. 

 

Tata Steel valuation

 

Tata Steel’s valuation has historically found support near 1x P/BV, while it currently trades around 1.9x. Applying a 2.5x P/BV multiple to FY27F book value of around ₹90 yields a fair value of ₹224 per share. 

 

InCred Equities analysts view Tata Steel as a leveraged play on India’s industrial upcycle and Europe’s reconstruction boom, upgrading the stock to ‘Add’. 

 

Apart from that, key downside risks, analysts believe, include slower-than-expected European recovery, delays in EU trade measures, mine auction uncertainties post-FY30, and a global steel price downturn that could impact earnings.