Julius Baer Downgrades Tata Steel to “Reduce” Despite Robust Results; finds the risk-reward unfavorable


Demand for steel is expected to remain strong in the future. (Image: REUTERS)

Tata Steel has been among the darlings of Dalal Street investors looking to bank on the rising commodity cycle so far this year. The stock has jumped 85% since the end of January, now trading at Rs 1,124 each. The Tata group company has seen strong revenue growth to support buying interest and steel as a commodity remains in an attractive position given world events at this point. However, global research and brokerage firm Julius Baer decided not to participate in any further rally of the title and downgraded the title to lower its rating.

Stocks outperform benchmarks

Although shying away from Tata Steel, analysts at Julius Baer, ​​in a recent memo, said Tata Steel is one of the major players in India’s steel industry, given its large-scale, diverse geographic presence. , its low-cost domestic operations and its focus on value. -reinforced steel. The report came days after Tata Steel announced a 39% increase in consolidated revenue on an annual basis and an 11% increase in deliveries over the same period.

“As the upside risks to earnings continue, we are downgrading the stock to Reduce with a target price of Rs 1,310 (5.3x EV / EBITDA FY 2023E) as the risk-reward ratio has turned unfavorable,” indicates the report. The stock has outperformed benchmarks since the end of March last year. While Tata Steel zoomed 302% over the period, Nifty 50 gained 72% and the Nifty Metal index is up around 200%. The rise came as the stock rebounded from the March 2020 sell-off and investors envisioned a favorable cyclical turn.

Demand for steel is expected to remain strong in the future. “Long-term demand for steel in India is likely to be driven by the automotive, import substitution and consumer durables, and public infrastructure spending sectors. Profitability is expected to be above historical averages given the recovery in global market demand and political action in China, ”the report said.

Other brokerage firms disagree

National brokerage and research firm Edelweiss Securities, however, remains a supporter of Tata Steel. “We believe that a favorable steel cycle and a Europe at the sweet spot will complete the twin goals of growth and debt reduction. Further improvement in European spreads will be positive as it will improve the sustainability of Tata Steel Europe’s cash flow, ”said Edelweiss.

Additionally, Kotak Securities rates Tata Steel’s risk / reward ratio as the most favorable in the industry. “We increased EBITDA by 39/19% for FY2022 / 23E and fair value to Rs 1,400 in March 2023E on higher earnings and lower debt. We maintain BUY on attractive valuations at 3.6X / 4.8X EV / EBITDA FY2022 / 23E, ”they said.

(The stock market recommendations in this article are issued by the respective research and brokerage firms. The Bharat Express News Online assumes no responsibility for their investment advice. Please consult your investment advisor before investing.)

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