Tata Steel gains on £1.25-bn agreement with UK govt; brokerages issue ‘Overweight’ rating

Shares of Tata Steel Ltd gained marginally on September 18 after signing a joint agreement with the UK government to invest £1.25 billion at the company’s facility in Port Talbot, Wales. At 9:36 am, shares of the company were trading 0.68 percent higher at Rs 132.85 on the BSE. The stock has gained 14.38 percent in a month and 26.75 percent in the past six months.

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.

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Brokerage views

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

CLSA: 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: 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: 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.

Morgan Stanley (MS): MS has given Tata Steel an “Equal-weight” rating, with a target price of Rs 119 per share. The joint investment in a 3 million tonnes EAF plant at Port Talbot, along with additional policy support from the UK government, including scrap availability, renewable energy sources, and support for green transition during the CBAM transitional phase, is seen as a beneficial move for the company’s future prospects.

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