Global steel prices are seeing a rally due to the Russia-Ukraine crisis. Steel prices are likely to rise further due to rising input costs.
Tata Group Multibagger Stock: Shares of Tata Steel are seeing a boom today and it climbed more than 1.5 percent to reach Rs 1377. Whereas on Thursday it was closed at Rs 1349. Brokerage house Axis Securities is expected to gain 25 per cent more than the current price in the stock. Global steel prices are seeing a rally due to the Russia-Ukraine crisis. Steel prices are likely to rise further due to rising input costs. This will result in improvement in the balance sheet of the company. On the other hand, due to the current geo-political tension, where supply from major producing countries Russia and Ukraine has been affected, domestic company Tata Steel can benefit from it. The stock has given around 220 per cent returns in the last 5 years.
strong cash flow
Brokerage house Axis Securities has kept a target of Rs 1700 while recommending investment in Tata Steel stock. If you look at yesterday’s closing price of Rs 1349, then 25 percent return is possible in this. The brokerage house says that the stock is currently trading at a multiple of 4.6 EV/EBITDA which is below the 10-year average multiple of 6.3. It is expected that steel prices will continue to rise further, due to which strong cash flow can be seen in the company. Though margins may be impacted in 1HFY23 due to rising coal prices, margins are expected to remain better going forward. Due to which the profit of the company will also increase.
Balance sheet improvement
The brokerage house says that the net debt of Tata Steel is decreasing and it has come down to Rs 62,869 crore in December 2021. The company had a debt of 1 lakh crore by the end of FY20. The company’s balance sheet is also improving due to rising steel prices. The brokerage estimates that the net debt / EBITDA of the company may decline to 0.95x from the peak of FY20 at 5.8x. With this, the company can also plan capex further.
Geopolitical tension: Opportunity for the company
Russia and Ukraine are both major steel exporters. In such a situation, the global supply of steel is getting affected due to geopolitical tension. Many countries have also imposed economic sanctions on Russia. Being a major producer of steel in this condition, Tata Steel will have an opportunity to increase exports. Let us inform that in the year 2021, Russia’s crude steel production was 76 million tonnes (MT), while Russian steel exports were 30 MT. Similarly, in the year 2021, Ukrainian crude steel production was 21 million tonnes (MT) while Ukrainian steel exports were 15 MT.
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)