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Tata steel net-debt/EBITDA now stands at only 0.8x as against 6.1x in March 2020, much below the cycle average target of 2.0x, putting the company in a comfortable position to pursue growth Capex moving forward, highlighted brokerage and research firm Axis Securities.

“Tata Steel achieved massive deleveraging, post which, the company’s net debt has come down to 62,869 cr as of December 2021 from the peak of ~ 1 lk cr in FY20. In March 2022, it further reduced net debt to 51,049 cr. Strong steel prices, disciplined capex outflow, and working capital management has put the company’s balance sheet on solid footing," the note stated.

Sharing as its top stock pick for the week, the brokerage has maintained its Buy recommendation on Tata Steel shares with a target price of 1,415 apiece.

Tata Steel intends to double its capacity from 19.6 mtpa to ~40 mtpa, mainly through organic expansion in India. The management highlighted a lot of optionalities to put Capex in capital-efficient and value accretive ways and is confident of enhancing capacity through internal cash flows without any issuance of debt. 

Moreover, the capex intensity will be lower for the brownfield organic projects. The company has sufficient land bank to grow organically, which gives it the flexibility to pace its Capex outflow in line with the steel cycle, Axis Securities said.

“The organic growth optionality allows Tata to pace the Capex in line with the steel cycle. The management said it will be balancing the deleveraging, return to shareholders, and growth Capex and reiterated that it will note use leverage for growth," the note added.

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

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