Home / Markets / Stock Markets /  Why JPMorgan is bullish on this Indian metal stock, sees over 58% upside

While steel prices in India have corrected sharply to 60- 61k/t, domestic demand has also recovered sharply as consumer de-stocking is behind us. Analysts at JPMorgan do not see further declines in the domestic steel market. 

"Overall Tata Steel remains committed to ~$1 bn net debt reduction, and we see upside risk to this number if underlying earnings hold up at current levels. With the combination of working capital release and elevated underlying earnings, Tata Steel should deliver another year of material net debt reduction," the note stated. 

The global brokerage has overweight tag on the Indian metal stock. Its June 2023 target price is 1,400 per share, implying a potential upside of more than 58% from the current stock level.

While markets are likely to fear an immediate recession, JPMorgan believe the steel market is also facing a series of one-off issues (export tax, China demand decline on COVID-19, rains) that should ease.

“Tata Steel's Europe footprint has materially declined, and India should continue to increase. TATA’s KPO expansion of 5MT, large captive iron ore mining ramp-up and new brownfield expansion pipeline yield strong volume visibility with an improving balance sheet," it added.

Though, key downside risks to its rating and price target include a sharp decline in steel spreads and a sharp decline in steel demand in India, the brokerage said.

“While TATA has attractive growth optionality across multiple sites in India (NINL, KPO, Meramandali), we believe the key constraint for TATA (and the large Indian Resource companies) is NOT capital, but how to deploy it aggressively on the ground. Large projects remain difficult to execute on time given labor mobilization and contractor issues. TATA’s 5MT KPO should be commissioned in 2HFY24, and post that we would expect TATA to start work on the next expansion," JPMorgan's note stated.

Tata Steel, part of Tata Group, is one of the leading steel manufacturing companies of India. The company posted a 47% jump in its consolidated net profit at 9,756 crore for the quarter ended March 2022. Its revenue from operations, meanwhile, rose 38% to 69,323 crore. For Europe business, revenues increased by 54% over last year to £8,876 million and EBITDA stood at £1,199 million.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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