Tata Steel targets growth from Indian expansion, firmer prices and European restructuring

Investment View and Target Price

In its May 18, 2026 result update, ICICI Direct Research maintained its BUY rating on Tata Steel and revised its sum-of-the-parts target price to Rs 270 per share, compared with the CMP of Rs 210. The positive view is supported by resilient steel prices, favourable domestic demand, ongoing Indian capacity expansion and the potential for European profitability to improve as import-control measures and restructuring take effect.

Q4FY26 Consolidated Performance

Tata Steel reported healthy consolidated performance in Q4FY26, with higher operating income, steel volumes and profitability. Net debt stood at Rs 80,144 crore as of March 2026, equivalent to net debt to EBITDA of about 2.3 times.

Indian Operations and Capacity Expansion

Indian operations were the principal driver of performance. Tata Steel sold 6.2 MT in Q4FY26, up 11% year on year. Blended realisation increased by Rs 3,055 per tonne quarter on quarter to Rs 64,548 per tonne, while Indian EBITDA per tonne improved by about Rs 2,570 quarter on quarter to Rs 15,952 per tonne. The improvement was aided by higher spot steel prices, although coking-coal costs increased.

Management expects Indian net sales realisation to rise by about Rs 6,000 per tonne quarter on quarter in Q1FY27. However, coking-coal prices are expected to rise by about US$15 per tonne, while freight, logistics and energy costs could create pressure.

ICICI Direct expects India sales volumes to grow at a 7% CAGR over FY26-FY28E to about 26 MT. Tata Steel recently commissioned a 0.75 MTPA electric arc furnace at Ludhiana, taking Indian crude-steel capacity to 27.4 MTPA, and is targeting about 40 MTPA capacity by 2030.

Key expansion and value-addition initiatives include:

• The 4.8 MTPA Neelachal expansion, expected by 2029.
• A 2.5 MTPA finished-steel expansion at Meramandali.
• A proposed Gadchiroli iron-ore hub and 6 MTPA greenfield plant with Lloyds Metals & Energy.
• Downstream expansion in tubes, wire, colour-coated steel, galvanising and cold rolling.

Management expects overall steel volumes to increase by more than 2 MT in FY27, led by the ramp-up at Kalinganagar.

European Restructuring and Profitability Outlook

In Europe, Tata Steel is restructuring its operations through a transition towards electric arc furnaces. The UK project has 3.2 MTPA capacity and government support. In the Netherlands, the company plans to replace one blast furnace with a direct reduced iron and electric arc furnace configuration by 2030.

Netherlands EBITDA was Euro 58 million in Q4FY26, while the UK EBITDA loss narrowed to Pound 48 million. Management expects the UK business to move gradually towards EBITDA breakeven, supported by better pricing and policy support.

Risks to the European outlook include environmental and regulatory challenges in the Netherlands. The Direct Strip Production facility was temporarily shut after emissions exceeded limits. Continued losses in the UK also remain a concern.

Cost Savings and Earnings Estimates

Tata Steel delivered cost savings of about Rs 10,868 crore in FY26 and is targeting around Rs 7,140 crore in FY27. ICICI Direct forecasts consolidated EBITDA to grow at a 25% CAGR over FY25-FY28E.

Valuation and Key Risks

The target valuation applies FY28E EV/EBITDA multiples of 7.5 times to the Indian operations and 4 times to the European operations.

Key risks identified by ICICI Direct are:

• A sharp decline in domestic steel realisations.
• Regulatory challenges at European operations.