Julius Baer downgrades Tata Steel to ‘reduce’ despite robust results; finds risk-reward unfavourable

Metal demand is anticipated to stay robust going forward.
(Picture: REUTERS)

Tata Steel has been among the many darlings of Dalal Avenue traders trying to financial institution on the commodity upcycle to date this 12 months. The inventory has surged a large 85% since January finish, to now commerce at Rs 1,124 apiece. The Tata Group agency has reported robust income development to help the shopping for curiosity and metal as a commodity stays in a horny place contemplating international occasions at this juncture. Nonetheless, international brokerage and analysis agency Julius Baer has determined to opt-out of any additional rally within the inventory and downgraded the inventory to cut back ranking.

Inventory outperforms benchmarks

Though turning away from Tata Metal, analysts at Julius Baer, in a latest be aware mentioned that Tata Metal is among the robust performs in India’s metal trade, given its massive scale, diversified geographical presence, low-cost home operations, and deal with value-added metal. The report got here days after Tata Metal reported a 39% improve in consolidated income on-year foundation and an 11% improve in deliveries in the identical interval. 

“Whereas upside dangers to earnings proceed, we downgrade the inventory to Scale back with Goal value of Rs 1,310 (5.3x EV/EBITDA FY 2023E) as risk-reward has turned unfavourable,” the report mentioned. The inventory has outperformed the benchmark indices for the reason that finish of March final 12 months. Whereas Tata Metal has zoomed 302% within the time interval, Nifty 50 has gained 72% and the Nifty Metal index is up about 200%. The up-move has come because the inventory rebounded from the March 2020 sell-off and traders eyeing a beneficial cyclical flip.

Metal demand is anticipated to stay robust going forward. “Metal demand in India over the long run is more likely to be pushed by the auto, import-substitution, and shopper durables sectors and public infrastructure spending. Profitability ought to be increased than historic averages given the demand restoration within the international market together with coverage motion in China,” the report mentioned.

Different brokerage corporations disagree

Home brokerage and analysis agency Edelweiss Securities, nevertheless, nonetheless stays a believer in Tata Metal. “We imagine a beneficial metal cycle and Europe in candy spot will complement the dual deal with development and debt discount. Additional enchancment in European spreads shall be constructive as it would enhance Tata Metal Europe’s money sustainability,” Edelweiss mentioned. 

Additional, Kotak Securities discover the risk-reward in Tata Metal to be essentially the most beneficial within the sector. “We have now elevated EBITDA by 39/19% for FY2022/23E and Honest Worth to Rs 1,400 on March 2023E on increased earnings and decrease debt. We keep BUY on enticing valuations at 3.6X/4.8X EV/EBITDA FY2022/23E,” they mentioned.

(The inventory suggestions on this story are by the respective analysis and brokerage corporations. Monetary Specific On-line doesn’t bear any accountability for his or her funding recommendation. Please seek the advice of your funding advisor earlier than investing.)