Tata Steel Shares Hit 52-Week High On Deal With UK Govt; Should You Buy, Sell Or Hold?

Tata Steel share price touched a new 52-week high on Monday after the company signed a joint agreement with the UK government to invest £1.25 billion at the company’s facility in Port Talbot, Wales.

Tata Steel’s stock price touched intraday high of Rs 134.85 and low of Rs 131.85. Tata Steel share price opened at Rs 134.75 apiece on BSE.

The Tata group company and the UK government announced a joint agreement to invest £1.25 billion in electric arc furnace steelmaking at the Port Talbot site. This includes a grant from the UK Government of up to £500 million. The Port Talbot project will reduce direct emissions by 50 million tonnes over a 10-year period. Further, the project would also involve Tata Steel’s balance sheet being restructured with potential elimination of the current cash losses in the UK operations and non-cash impairment of legacy investments.

According to the company’s exchange filing, the project would increase the UK’s steel security and be the first significant step towards the local steel industry’s decarbonization, resulting in a reduction of direct emissions of 50 million tonnes over a ten-year period. With a high degree of circularity, it would make use of domestic scrap steel that is strategically available and encourage local value addition in the UK.

The proposed project would ensure that steelmaking would continue in Port Talbot after the switchover and make Tata Steel UK a lucrative, capital-efficient, and sustainable business. With the support of the UK Government, the project has a compelling investment case.

Additionally, the planned project includes restructuring Tata Steel’s balance sheet, potentially eliminating the ongoing cash losses in the UK business and the non-cash impairment of legacy investments.

“Tata Steel UK has been facing significant challenges due to the heavy end facilities approaching their end of life. The proposed project with one of the largest investments in the UK Steel Industry in recent decades, provides an opportunity for an optimal outcome for all stakeholders.

We will undertake a meaningful consultation with the Unions on the proposed transition pathway in the context of future risks and opportunities for Tata Steel UK. With the support of the UK Government and dedicated efforts of the employees of Tata Steel UK along with all stakeholders, we will work to transform Tata Steel UK into a green, modern future-ready business,” said TV Narendran, Tata Steel’s Chief Executive Officer and Managing Director in an exchange filing.

What Do Analysts Say?

Most brokerages have given a buy rating on Tata steel scrip.

CLSA has assigned an “Outperform” rating to Tata Steel, with a raised target price of Rs 145 per share from Rs 125. According to CLSA, “The company’s recent agreement with the UK government to restructure its assets and implement structural changes in operations and cost management is seen as a positive development.” While the overhang has been removed, CLSA emphasises that the value accretion for investors will largely depend on the successful realisation of cost savings.

Jefferies is bullish on Tata Steel, giving a “Buy” rating with a target price of Rs 145 per share. Tata Steel’s collaboration with the UK government, where it invests £750 million while the UK government invests £500 million, is expected to result in higher spreads compared to the existing setup. Furthermore, this investment is viewed as an opportunity to advance decarbonisation, but Jefferies also notes that it missed a chance to reduce exposure to high-cost, low-margin geographies.

Citi maintains a “Buy” rating for Tata Steel, with a target price of Rs 140 per share. “The UK government’s support for Tata Steel’s EAF investment is seen as a positive step towards ensuring continuity, sustainability, and green operations,” stated Citibank. However, Citi exercises caution, suggesting that it may be premature to gauge the full impact of this development until there is more clarity surrounding union consultations.

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