Tata Steel share price forecast: Can it withstand high rates?

15:54, 13 May 2022

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Tata Steel share price forecast: Can it withstand high rates? In this photo illustration the Tata Steel Europe logo seen displayed on a smartphone
Tata Steel share price forecast: Can it withstand high rates? Photo: rafapress / Shutterstock.com

Despite reporting a strong performance in 2022, Tata Steel (TATASTEEL) shares have fallen in the last five days. The flagship company of multinational Indian conglomerate Tata Group, like its peer, is facing a slew of headwinds that may prove tough to beat

Risks from monetary tightening policy – both at home and abroad – to tame high inflation; the Russia-Ukraine war’s impact on energy prices; and a slowing economy in China, the world’s top steel consumer, due to fresh Covid-19 lockdowns, have all cast a shadow over global steel demand.

At the time of writing (13 May), Tata Steel’s share at the National Stock Exchange of India (NSE) had last closed at INR1,101.75, an almost 13% drop in share value since reporting record earnings for 2022 on 3 May.

Tata Steel along with a few of its competitors, including JSW Steel (JSWSTEEL) and Jindal Steel & Power (JINDALSTEL), were also among the top losers at the Nifty Metal Index, which fell 3.51% on 12 May. The index has fallen more than 20% since hitting a 52-week high of 6,825.65 on 11 April.

The broader Nifty 50 index (NIFTY50) dropped 2% on 12 May, tracking losses across Asian markets after news of the US consumer price index (CPI) increasing 8.3% year-over-year (YoY) in April, exceeding market expectations of 8.1%. Persistent high inflation could prompt the Federal Reserve (Fed) to take a more hawkish stance on rates. 

In India, the Reserve Bank of India (RBI) on 5 May raised the repo rate by 40 basis points (bps) to 4.40% to keep inflation in check. The Economic Times reported that India’s central bank could raise its inflation projection for the fiscal year and consider further interest rate hikes.

The World Steel Association forecast on 14 April that steel demand could grow by just 0.4% to 1,840.2 megatonnes (Mt), a significant drop from the 2.7% growth in 2022. The association projected that steel demand could rebound to a growth of 2.2% to reach 1,881.4Mt in 2023. 

However, the industry group warned its forecast is subject to high uncertainty due to the ongoing war in Ukraine:

“For 2022 and 2023, the outlook is highly uncertain. The expectation of a continued and stable recovery from the pandemic has been shaken by the war in Ukraine and rising inflation.”

Will Tata Steel’s stock price maintain its solid performance amid a challenging environment? In this article we look into Tata Steel’s fundamentals, news and latest Tata Steel share price prediction from analysts.

Tata Steel share price history 

Tata Steel 5-year price chart

In 2021, Tata Steel’s stock rode the recovery in global commodity demand after the Covid-19 pandemic. The company’s improving financial performance boosted its shares as the Mumbai-based steelmaker moved ahead with its debt restructuring plan.

The company’s share value gained 72.68% in 2021, compared to a rise of 36.35% in 2020. It started 2022 at INR1,142 on 3 January, compared to INR693 in early January 2021.  

Tata Steel stock continued its upward trajectory, hitting its highest intraday price of INR1,386.70 on 6 April after it reported a 12.5% increase in steel output from its India operation.

Tata Steel India reported its highest ever annual output of 19 million tonnes of crude steel in the financial year 2022, rising from 16.92 million tonnes in the previous year despite a second wave of Covid-19 outbreaks.

But the stock has given up its gain since hitting the highest price for this year. Analysis showed that, as of 13 May, Tata Steel stock had dropped 3.5% year-to-date (YTD) and 4.4%YoY. 

At the time of writing (13 May), technical analysis for the stock indicated bearish short-term sentiment, according to Tradingview. All moving averages (MAs) for daily and weekly indicators suggested ‘sell’, though the Hull moving average indicated a ‘buy’. 

A reading of 26.47 on the Relative Strength Index (RSI) was neutral, but indicated that the stock was in oversold territory. An RSI reading of 30 or less may indicate that the asset is becoming undervalued and that a price reversal is imminent.

Tata Steel stock news: Strong 2022 earnings

On May 3, Tata Steel published its financial results for the Indian financial year ended 31 March 2022. The company reported that its revenue had risen 55.7% to INR2.43trn, from INR1.56trn in the same period in 2021.

The steelmaker also saw record profits after tax at INR417.49bn – nearly five times the INR81.9bn recorded a year earlier. Net profits surged nearly 47% to INR97.56bn, from INR66.44bn.

Record production and high steel prices helped Tata Steel compensate for rising prices of steel-making raw materials, such as coking coal, following Russia’s invasion of Ukraine in February. 

The Steel HRC (hot-rolled coil) NW (Northwest ) Europe contract at the London Metal Exchange (LME) has gained more than 10% YTD to above $1,000 a tonne, up from $963 at the end of 2021. The metal briefly hit above $1,600 a tonne at the end of March. 

In 2022, Tata Steel produced 31.03 million tonnes of steel, up from 28.54 million tonnes in 2021. Deliveries increased to 29.52 million tonnes from 28.50 million, due to strong demand as the world’s economy recovered from the Covid-19 pandemic. The domestic market in India accounts for 62% of Tata Steel’s deliveries.

The company reported its highest ever earnings before interest, taxes, depreciation, and amortisation (EBITDA) of INR638.3bn in 2022. In the past 12 months, Tata Steel managed to shave its debt by 32% to INR510.49bn, which brought its net debt to EBITDA to 0.80x.

The company’s board recommended a dividend of INR51 per fully paid equity share and a 10:1 stock split.

2023 business outlook

T V Narendran, Tata Steel’s CEO and managing director, said the company aimed to close an acquisition of steelmaker Neelachal Ispat Nigam Limited (NINL) in the first quarter of FY 2023. 

In January, Tata Steel announced that its subsidiary, Tata Steel Long Products, had won a bid to acquire a 93.71% stake in NINL with 1 million tonnes of annual production capacity. The acquisition is expected to fuel rapid output growth as the company aims to achieve 40 million tonnes of crude steel production by 2040. 

“We will scale it up rapidly to drive expansion of our high value retail business,” said Narendran. 

The company said in January that on top of the NINL acquisition, it will begin construction of a 4.5 million tonnes a year long products complex in the next few years, and will expand it to 10 million tonnes by around 2030.

In a presentation to analysts, Tata Steel expected global demand to remain stable driven by 

by stimulus measures focused on infrastructure projects especially. In India, steel demand is forecast to remain robust as the government is pushing for infrastructure spending and as auto production is gradually recovering. It estimated EU Steel demand to sustain above pre-Covid levels, although the Russia-Ukraine war and high energy prices posed risks.

Tata Steel stock forecast 2022-2025

Motilal Oswal Financial Service, on a 5 May note, maintained its ‘neutral’ rating on Tata Steel. The Mumbai-based brokerage set a Tata Steel price target of INR1,440, down from INR1,500 as the company was cautious about steel demand in India at current prices. 

“While current steel prices are buoyant and will support such outflows, we are near the peak of the steel cycle and the Chinese economy is slowing down. Unless there is a big round of stimulus in China, we expect steel prices in Asia to cool off, which will reduce the cash flow available for growth capex or may result in re-leveraging of TATA’s Balance Sheet in the future,” said Motilal Oswal.

BOB Capital Markets in its Tata Steel stock prediction kept a ‘buy’ rating, but lowered its  price target to INR1,700 from INR1,755.

“Steel prices have recently been supported by supply disruptions due to the Russia-Ukraine conflict and a tight coking coal market. However, with a weakening demand outlook, prices could eventually soften from current levels as disruptions ease,” the company said, adding an improving supply- demand balance to support steel at a healthy cyclical average of US$ 650/t in 2024.”

ICICI Direct Research also rated Tata Steel a ‘buy’ and offered a 12-month price target of INR1,600. 

Hem Securities in its note on 4 May, rated Tata Steel stock a ‘buy’ with a price target of INR1,650.

On 4 May, Jefferies rated the stock a ‘hold’, but increased its price target for Tata Steel to INR1,350 from INR1,240.

“Global metal demand outlook is getting clouded by the twin effect of Covid lockdown in China and tightening interest rate cycle elsewhere. In China, the government might provide more support for the economy, including infra investments, but this might take time to materialize with risk of more downside to demand in the near-term. The tightening cycle in the US and elsewhere is likely to lead to weakening demand outside of China,” Jefferies said in the note. 

The analysts did not offer a Tata Steel share price future prediction for 2023, 2024 and 2030.

As of 13 May, Wallet Investor in its long-term Tata Steel stock forecast expected the stock to trade at INR1,504.912 by May 2023 and INR1,820.080 in 2024. The algorithm-based service projected the stock could rise to INR2,451.776 in 2026 and INR2,743.075 by May 2027. 

When looking at Tata Steel stock projections, keep in mind that analyst and algorithm-based predictions can both be wrong. It is critical to conduct your own research. Your decision to trade should be influenced by your risk tolerance, market knowledge, and portfolio spread. And never trade money you cannot afford to lose.

Is Tata Steel a good buy for the long term? 

Tata Steel has solid fundamentals as is on track to expand its production and reduce its debt to improve its balance sheet. However, as analysts mentioned above, a high interest rates environment and expected slowing economy are headwinds for steel demand. 

Whether Tata Steel is a good investment for you or not will depend on your portfolio composition, investment goals and risk profile. Different trading strategies will suit different investment goals with short or long-term focus. You should do your own research and never invest what you cannot afford to lose.

FAQs

Analysts have mixed forecasts for Tata Steel stock price target, although projection from algorithm-based forecasting service Wallet Investor suggested the stock could rise. However, you should conduct your own research because price forecasts from analysts and algorithm-based services are not error-free.

BOB Capital Markets, Hem Securities, and ICICI direct research gave a ‘buy’ rating for Tata Steel. Motilal Oswal gave a ‘neutral’ rating, while Jefferies rated Tata Steel’s stock a ‘hold.’ 

Only you can decide if the stock is suitable for your investment goals. You should conduct your own analysis, taking into account such things as the environment in which it trades and your risk tolerance. And never invest money that you cannot afford to lose.

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