Buy Tata Steel Ltd for the Target Rs. 250 by Motilal Oswal Financial Services Ltd
Price hikes boost domestic outlook; EU near breakeven
Driven by safeguard duty-led price hikes, we believe Tata Steel’s domestic business should deliver a better performance in the near to medium term. With imports declining after the duty, domestic steel players could see strong volume. Given its ongoing capacity expansions, TATA is well placed to capitalize on the longer-term opportunity. A gradual turnaround in the EU business, driven by regulatory tailwinds and cost-saving measures, should support the company’s consolidated performance.
Domestic steel prices jump after safeguard duty implementation;
imports plunge, while exports surge
* Domestic HRC prices have rebounded from INR47,500/t in 3QFY26 to INR57,800/t currently, following the government’s definitive safeguard duty.
* While coking coal costs have increased by USD20-30/t, the price hike would more than compensate for the coal cost increase, leading to healthy EBITDA/t expansion in the India business.
* As per the Joint Plant Committee (JPC), India’s crude steel production rose 10% YoY to 167mt in FY26, and imports declined 19% YoY to 5.9mt due to tighter import controls, whereas exports surged 84% YoY to 6.6mt.
Capacity expansion on track; to help capitalize on the opportunity
* India's steel demand is projected to grow by ~8-10% over FY26-30, backed by a robust demand environment, policy support, and ongoing recovery in industry fundamentals. TATA is aggressively expanding its capacity in India to capitalize on rising domestic demand, scaling from 26.5mtpa in FY25 to 40mtpa by FY31, with an annual capex commitment of ~INR160b.
* Recently, TATA commissioned 5mtpa integrated capacity at Kalinganagar, increasing the plant’s total capacity to 8mtpa (INR270b investment), with phase-III expansion targeting 13mtpa.
* Other key projects include scaling up NINL from 1mtpa to 5.8mtpa. The board has approved the expansion under Phase-I of its long-term plan with an expected timeline of 3-3.5 years.
* The board has approved establishing a ~1mtpa demonstration plant in Jamshedpur, based on Hisarna low-carbon technology.
* TATA is transitioning into green steelmaking in Europe, where it is converting Port Talbot (UK) to a 3mtpa EAF from conventional BF route steelmaking. The company is also exploring a gas-based DRI + EAF route at IJmuiden (the Netherlands), subject to policy clarity.
* These expansions would place the company well to capitalize on the expected demand improvement ahead.
European operations to post better performance driven by regulatory tailwinds and cost-saving initiatives
* EU has implemented CBAM from 2026, under which steel importers will progressively bear carbon costs (from 10% in CY26 to 20% in CY27 and higher thereafter). This would support EU steel prices and protect earnings of steelmakers in that region.
* China has been reducing its steel production owing to weak demand and trade restrictions by other countries against low-cost imports. In Jan-Mar’26, China reduced steel production by 6% YoY to 238mt. In CY25, China’s steel production was below the 1bt mark, the lowest level since 2018. Chinese steelmakers produced 950mt in CY25 (down 6% YoY).
* Tata Steel Europe (UK & Netherlands) faces challenges of high energy and operational costs, subdued demand, and decarbonization obligations. The INR115b cost transformation program (India, UK, and the Netherlands) is on track, with the UK targeted to break even in the next few quarters.
* Europe operations are making visible progress toward a breakeven, with recent quarters showing a narrowing of losses from USD42/t in 3QFY25 to USD10/t in 3QFY26 despite weak NSR, which reflects strong cost reduction.
* We expect further improvement to be driven by cost optimization, softer energy prices, and benefits from the legacy BF shutdown in the UK. This could lift Europe’s EBITDA/t to ~USD70 and co
Valuation and view: BUY
* India business is expected to continue its strong performance, driven by improved pricing. In Europe, near-term profitability remains contingent on spread recovery and energy costs, while structural measures such as CBAM and tighter import quotas should gradually improve pricing discipline and reduce import-led margin pressure.
* TATA is one of the largest players in India's steel sector and we maintain a constructive stance, supported by a strong domestic demand outlook and safeguard duty-led price support. Net debt stood at INR818b as of 3QFY26, which includes cash of INR108b. This translates into a net debt-to-EBITDA ratio of 2.59x as of Dec’25.
* At CMP, TATA is trading at 7x FY28E EV/EBITDA and 2x FY28E P/B. We maintain our BUY rating with an SoTP-based TP of INR250 (on FY28 estimate)
* India business is expected to continue its strong performance, driven by improved pricing. In Europe, near-term profitability remains contingent on spread recovery and energy costs, while structural measures such as CBAM and tighter import quotas should gradually improve pricing discipline and reduce import-led margin pressure.
* TATA is one of the largest players in India's steel sector and we maintain a constructive stance, supported by a strong domestic demand outlook and safeguard duty-led price support. Net debt stood at INR818b as of 3QFY26, which includes cash of INR108b. This translates into a net debt-to-EBITDA ratio of 2.59x as of Dec’25.
* At CMP, TATA is trading at 7x FY28E EV/EBITDA and 2x FY28E P/B. We maintain our BUY rating with an SoTP-based TP of INR250 (on FY28 estimate)
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