Tata Steel gains from stronger domestic pricing while Europe remains key earnings monitor

Investment View

Motilal Oswal Financial Services reiterated its BUY rating on Tata Steel in its September 21, 2026 report. The view is supported by favourable domestic steel pricing, resilient Indian demand and ongoing capacity expansion.

The broker expects Tata Steel’s Indian operations to deliver strong earnings in Q2 FY27, despite the seasonally softer period. It sees a potential earnings and re-rating opportunity if Tata Steel Europe stabilises and turns around, although Europe remains a material monitoring point.

Domestic Steel Pricing and Demand

Domestic HRC prices rose 7 per cent month on month to a four-year high of Rs 62,000 per tonne in September 2026. Rebar prices recovered to Rs 56,800 per tonne from Rs 48,850 per tonne in June 2026.

Motilal Oswal attributes the price strength to lean channel inventories caused by maintenance shutdowns, improved consumption during July to August 2026 versus April to May 2026, and rising input costs. India produced around 27.5 million tonnes of finished steel and consumed around 28.7 million tonnes during July to August 2026. Consumption growing faster than production has kept the domestic steel market relatively tight.

However, the broker cautions that higher coking coal, iron ore and pellet costs will become more evident in H2 FY27, making industry pricing discipline important for margin sustainability. Premium Australian coking coal increased to US$300 per tonne from US$260 per tonne in June 2026.

Capacity Expansion

Tata Steel has announced a capacity expansion from 27.4 million tonnes per annum in FY26 to 40 million tonnes per annum by FY31, with annual capital expenditure of around Rs 16,000 crore.

• Kalinganagar Phase III: Targeted to lift capacity to 13 million tonnes per annum from 8 million tonnes per annum, including the 5 million tonnes per annum Phase II expansion that is being ramped up.
• NINL: Capacity is being expanded by 4.8 million tonnes per annum to 6.2 million tonnes per annum, with potential for around 10 million tonnes per annum.
• Timeline: Board approval has been received and the expected timeline is 48 months.

European Operations and Key Risks

European operations remain the principal risk to the thesis. Tata Steel Netherlands shut its direct sheet plant in April 2026 following hazardous Chromium-6 emissions, resulting in external HRC sourcing, lower volumes, higher costs and weaker margins.

The plant received approval for a four-week trial from August 5, with further operation dependent on supporting data. Tata Steel Netherlands has paused its DRI and EAF decarbonisation project pending clarity on regulation, government funding and market support, including CBAM, safeguards and ETS dynamics.

Tata Steel UK is improving through revised safeguards and cost control, with EBITDA loss narrowing to Rs 340 crore from Rs 590 crore in Q4 FY26 and Rs 470 crore in Q1 FY26.

Financial Outlook

Motilal Oswal’s consolidated financial estimates are as follows:

The broker forecasts consolidated volume of 34.7 million tonnes and EBITDA of Rs 12,667 per tonne in FY28E. Net debt was Rs 82,300 crore in FY26, including Rs 10,000 crore of cash, equivalent to net debt to EBITDA of 2.4 times. Motilal Oswal expects net debt to EBITDA to improve to 1.9 times in FY27E and 1.6 times in FY28E.

Valuation and Target Price

At the CMP of Rs 183, Tata Steel traded at 6.8 times FY28E EV to EBITDA and 1.8 times FY28E price to book. Motilal Oswal’s Rs 220 target price is based on a sum-of-the-parts valuation using FY28E.

The valuation implies enterprise value of Rs 3,50,100 crore, less net debt of Rs 70,600 crore, and equity value of Rs 2,79,500 crore.