This steel stock turned Rs 25,000 to over Rs 1.1 lakh in just 13 months

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Over the past one-year metal stocks are shining bright on Dalal Street. The Nifty Metal index has surged around 263% compared to 90% returns generated by Nifty 50 since March 24, 2020, the day India went into lockdown. This outperformance is driven by rising steel prices, strong global demand and supply-side constrain from China.

Tata group’s flagship company Tata Steel has outperformed both the Nifty Metal index as well as the benchmark Nifty 50 index. As the shares of the company have rallied 353.81% to Rs 1,233.90 on May 11, 2021. The scrip was at Rs 271.90 on March 24 last year. The price rise indicates that an investment of Rs 25,000 in 13 months ago has now turned into Rs 1,13,451 at present.

Back in the black The counter is on a tear and is trading at a record high since it announced Q4FY21 posted a consolidated net profit of Rs 7,161.91 crore for the quarter ended March 2021, mainly on account of higher income. The company had reported a net loss of Rs 1,615.35 crore in the year-ago quarter.

In Q4FY21 Tata Steel achieved the highest ever quarterly crude steel production of 4.75 mn tons from India operations this saw company’s total income jumping to Rs 50,249.59 crore from Rs 37,322.68 crore earlier.

On the operational front also, the company managed to achieve the highest ever quarterly EBITDA of Rs.12,295 crores with 40% QoQ and 2.7x YoY growth in Q4FY21. This translates into an EBITDA per ton of Rs 26,309 and an EBITDA margin of 40.9%. FY21 EBITDA was Rs.28,587 crores.

Street view With such stellar performance and the company to benefit from higher metal price, debt reduction and exports leading to higher realisation most analysts have revised the price target for Tata Steel.

Morgan Stanley | Target price: Rs 1,630 The current steel cycle to continue for a longer duration. Focus on deleveraging leading to structural repair of the balance sheet which will help the company to be resilient in any downcycle.

ICICI Direct | Target price: Rs 1,500 Tata Steel’s Indian operations reported healthy performance. For the quarter, the healthy performance of Indian operations aided the consolidated operations. Going forward, we model a consolidated EBITDA margin of 24.8% for FY22E and 21.8% for FY23E (FY21 EBITDA margin was at 19.5%). The debt repayment drive also augurs well.

Anand Rathi | Target price: Rs 1,437 Strong recovery in India business, efficient working capital management coupled with a sharp capital allocation should improve prospects further. China’s withdrawal of export rebates. Japan is also looking to cut steel capacity and reduce exports. Focus on carbon footprint reduction could drive a structural change in the international steel market. This could translate into lower Chinese exports and support global steel prices for longer. Domestic steel prices are at a discount to import parity prices allowing companies to push through price hikes. European operations are also expected to remain profitable with an improvement in spreads.

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