Tata Steel India strength offsets Europe weakness as margins outlook improves

Investment View and Valuation

In its 1 August 2026 report, Motilal Oswal Financial Services Limited retained its Buy rating on Tata Steel with a target price of Rs 220, compared with the report CMP of Rs 190. The broker cited strong momentum in the India business and an expected improvement in European operations over the coming quarters.

Motilal Oswal considers Tata Steel's long-term outlook strong, although it flags near-term uncertainty from steel-price volatility, higher input costs and emissions-related challenges in Europe.

At the report CMP, the stock traded at 7 times FY28E EV/EBITDA and 1.8 times FY28E price to book value. The Rs 220 target price is based on a sum-of-the-parts valuation of FY28E earnings, applying 8.5 times EBITDA to standalone operations, 5 times to Europe and 2 times to other subsidiaries, followed by a deduction for net debt.

Standalone Q1 FY27 Performance

Tata Steel's standalone performance in Q1 FY27 was broadly in line with Motilal Oswal's estimates. Standalone revenue was Rs 369 billion, rising 19 per cent year on year but declining 4 per cent quarter on quarter. Revenue was supported by stronger net sales realisation despite muted volumes.

Crude steel production stood at 5.76 million tonnes, up 10 per cent year on year and down 7 per cent quarter on quarter. Deliveries of 5.2 million tonnes were in line with estimates, increasing 5 per cent year on year but declining 16 per cent quarter on quarter because of maintenance shutdowns at Meramandali and Kalinganagar.

Average selling price increased 9 per cent year on year and 15 per cent quarter on quarter to Rs 71,367 per tonne, aided by the recovery in steel prices and safeguard duty. Standalone EBITDA was Rs 91.8 billion, up 29 per cent year on year and down 3 per cent quarter on quarter, in line with estimates.

EBITDA per tonne rose 19 per cent year on year and 16 per cent quarter on quarter to Rs 17,762, as strong net sales realisation offset higher coking-coal consumption costs. Standalone adjusted profit after tax was Rs 48 billion, up 29 per cent year on year and flat quarter on quarter, also in line with estimates.

Consolidated Results and European Operations

Consolidated Q1 FY27 EBITDA was Rs 92.6 billion, up 25 per cent year on year and down 6 per cent quarter on quarter, equivalent to EBITDA per tonne of Rs 12,743. Consolidated adjusted profit after tax was Rs 24.6 billion, above Motilal Oswal's estimate of Rs 20.7 billion.

Europe remained the key drag on consolidated performance. Combined Europe revenue was Rs 219 billion, up 6 per cent year on year and down 4 per cent quarter on quarter. Deliveries fell 10 per cent year on year and 15 per cent quarter on quarter to 1.88 million tonnes.

The shutdown of the Netherlands Direct Strip plant in April 2026 affected production and deliveries. Combined Europe reported an EBITDA loss of Rs 3 billion, equivalent to an EBITDA loss of USD 18 per tonne. Netherlands EBITDA fell to Rs 0.4 billion, while the UK EBITDA loss narrowed to Rs 3.4 billion from Rs 5.9 billion in Q4 FY26.

Management Outlook and Operating Drivers

Management expects domestic steel net sales realisation to decline by around Rs 1,500 per tonne quarter on quarter in Q2 FY27 because of monsoon-related weakness in long-product prices.

• Coking-coal consumption costs are expected to increase by USD 5 per tonne in India and around USD 10 per tonne in the Netherlands.
• UK realisation is expected to improve by GBP 70–80 per tonne in Q2 FY27, partly offset by higher substrate costs.
• Tighter safeguard measures on imports are expected to support UK steel prices.
• Management aims for UK EBITDA breakeven in H2 FY27, subject to market conditions.
• Netherlands profitability is expected to improve sequentially after production normalises following the plant restart, but to remain below normalised levels.

Earnings Estimates and Key Risks

Motilal Oswal reduced its FY27E EBITDA and adjusted profit after tax estimates by 7 per cent and 14 per cent, respectively. The revisions reflect weak Netherlands earnings following the plant shutdown and input-cost inflation. FY28E earnings estimates were kept largely unchanged.

The key near-term risks identified in the report are steel-price volatility, higher input costs and emissions-related challenges in Europe. European earnings also remain exposed to operational disruptions, including the impact of the Netherlands Direct Strip plant shutdown, as well as the pace of improvement in UK and Netherlands realisations and profitability.