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Growth capex for India, but need to expediate

Quick Pointers:

* Expect NINL EC approval in few weeks and capex finalisation by Mar’26; project completion targeted in 3-4 years, taking capacity to ~6mtpa.

* Plans to bolster longs portfolio with products like auto grade wire rods, tyre cord etc. taking total longs capacity to 10mtpa from c.5.4mtpa.

TATA announced several growth projects for India including the much awaited board approval to increase NINL’s capacity from 1mtpa to 5.8mtpa. It would be a replica of KPO-II blast furnace (BF-BoF) but will be focused on longs product portfolio which would drive efficiencies. Although detailed capex will be announced by Mar’26, it is going to be similar to greenfield capex benchmark as all supporting infrastructure will be built for both the phases to reach 10mtpa. TATA also plans to add a 2.5mtpa Thin Slab Caster & Rolling mill at Meramandali, to enhance thinner-gauge flats capacity, but it would be aligned with furnace relining planned in FY28. TATA has also signed a MoU with Llyod Metals & Energy (LMEL) to partner in the areas of iron ore mining, logistics, pellet and steel making; however, 6mtpa greenfield capex in Maharashtra will depend on the economic feasibility of using low-Fe grade iron ore postbeneficiation.

Management expects NINL to be commissioned in 3-4 years, while it will incrementally focus on higher-margin downstream finished steel products in the interim. Mgmt. also reiterated that current global steel prices are unsustainable and expect it to improve gradually. We expect fast tracking of NINL capex to maintain market share in fast growing domestic market as TATA would struggle for capacities post FY28E. All the growth projects (ex-MH est ~Rs450-500bn as per our caln) would aid volume growth only from FY29E. Existing 26.6mtpa Indian capacities and upcoming 0.8mtpa Ludhiana EAF would facilitate volume growth till FY28E. We cut our estimates by 2-3% on account of current weakness in steel pricing. At CMP, the stock is trading at 6.4x/5.8x EV of FY27/28E EBITDA. We maintain ‘Accumulate’ rating with revised TP of Rs188 (Rs196 earlier) valuing at 7x EV of Sep’27E TSI EBITDA.

* Neelachal Ispat Nigam Limited (NINL) 4.8mtpa Expansion: The Board has approved an in-principle 4.8mtpa Phase-1 greenfield expansion focused on long products for the construction segment. The project includes two 1mtpa rebar mills each, a 0.5mtpa coil mill, and a wire rod mill. Environmental and regulatory clearances are in advanced stages and expected within few weeks. Capex details will be finalised by Mar’26, with project execution expected to take 3-4 years thereafter. Post completion at the end of first phase, capacity at the plant would be ~6mtpa (existing 1mtpa+4.8mtpa expansion and some debottlenecking). Iron ore requirements will be met from NINL’s captive Koira mine.

* Meramandali 2.5mtpa thin slab caster: The Board has approved funding for design and engineering of a 2.5mtpa thin slab caster (TSCR) and rolling mill to expand thinner-gauge flats capacity. This 0.8mm mill capex intensity would be lower. Incremental 1mtpa hot metal capacity will be increased during blast furnace relining planned in FY28E. ~1.5mtpa extra slabs from KPO-II would be diverted for finished products at Meramandali post TSUK commissioning. As of now these slabs are getting exported to TSUK downstream facilities. Finished steel capacity at Meramandali would be ~6.5mtpa post this TSCR expansion.

* HR Pickling and Galvanizing Line (HRPGL) at Tarapur, Maharashtra: TATA will set up a 0.7mtpa HRPGL at its existing CR complex in Tarapur, Maharashtra, supporting auto-sector import substitution. The investment falls under Tata Steel BlueScope’s colour-coated business, which was recently consolidated. TATA intends to fast-track this capex and prioritise its early completion.

* MoU with LMEL for possible greenfield plant & better market access: TATA has signed a MoU with Llyod Metals & Energy (LMEL) to partner in the areas of iron ore mining, logistics, pellet and steel making too. Both will jointly explore a) operate mining concessions and associated infrastructure, b) development of its own 6mtpa greenfield steel plant in two phases and c) strategic co-operation in proposed 4.2mtpa steel project already being developed by LMEL in Gadhchiroli. All proposals are subject to further detailed evaluation and due diligence. Through the MoU TATA aims to leverage the Lloyd group’s strong presence in Maharashtra and secure tie-ups for iron ore sourcing. Greenfield capex in Maharashtra would depend upon economic feasibility of using low Fe grade iron ore post beneficiation. Non-forest land is available which would save time of R&R while West and South India customers can be served from this plant. Although this capex is expected to run in parallel to NINL, we believe this is long term project. The facility would mark Tata Steel’s entry into the west coast, strengthening its presence in western and southern markets and improving supply proximity to its Khopoli and Tarapur units consuming ~2mtpa crude steel.

* Replicating HIsarna’s success in India: TATA's board has approved initiation of engineering work and regulatory processes for a 1mtpa low-carbon demonstration plant at Jamshedpur, based on the proven HIsarna technology deployed at TSN’s Ijmuiden facility. The HIsarna process eliminates the need for pellets, coke or sinter plants and can operate using Indian coking coal. TATA has IP of this technology which would require relatively lower capex of Rs25-30bn for 1mtpa. Hot-metal production costs are estimated to be ~Rs3,000/t lower than the conventional blast-furnace route, while it would emit 20% lower carbon.

* Acquisition of 50.01% in Thriveni Pellets Pvt Ltd (TPPL) for Rs6.36bn: TATA announced acquisition of 50.01% stake in Thriveni Pellets Pvt Ltd (TPPL), which owns Brahmani River Pellets Limited (BRPL) having 4mtpa pellet plant and 212 km slurry pipeline from Barbil to Kalinga Nagar in Odisha. Posttransaction, TATA will hold a majority stake, with LMEL retaining 49.99%. The deal, executed at ~1x book value, is expected to yield savings of ~Rs0.6bn per month, implying a payback of ~1 year. The acquisition secures pellet-making capacity for TATA’s captive requirements. Deal completion is expected within 3-4 months, subject to CCI approval.

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