'Significant upside': Buy Tata Steel shares on European turnaround, says Nomura India

Nomura India has initiated coverage on Tata Steel with a ‘Buy’ rating and a target price of Rs 215, implying a potential upside of around 25 per cent. The brokerage cited strong domestic demand, a turnaround in European operations, and improving macro conditions as key drivers for its bullish view.

According to Nomura, Tata Steel is well-positioned for sustainable growth supported by a domestic focus amid robust demand trends, improved utilisation at Kalinganagar, a turnaround in its European business, continued partial benefit from lower iron ore costs beyond FY30, and attractive valuations.

The target price of Rs 215 is based on a slightly higher-than-historical mid-cycle one-year forward EV/Ebitda multiple of 6.9 times, while the stock currently trades at 2.1 times price-to-book.

Nomura expects Tata Steel to consolidate its leadership in India over the next few years through capacity expansion, operational efficiency, and sustainability initiatives. The brokerage projects asset utilisation to rise to 96 per cent by FY28, which, along with improved operating leverage, should aid margin expansion. Lower conversion costs and higher profitability are expected to reinforce Tata Steel’s position as one of India’s most efficient and sustainable steelmakers.

Addressing market concerns over potential loss of captive iron ore mines post-FY30, Nomura said these fears appear overstated. It expects Tata Steel to retain its position as the lowest-cost raw material producer in the industry, supported by 16 per cent of total reserves remaining in non-auctioned captive mines, a likely moderation in global iron ore prices amid higher low-cost supply, and a reduction in domestic auction premiums as local supply improves.

Nomura said Tata Steel Europe (TSE) will return to positive Ebitda by end-FY26, driven by efficiency improvements, supportive policy measures, and recovering regional demand. Once operations stabilize, the brokerage expects TSE to deliver an average Ebitda of about 60 pounds per tonne, comparable with European peers.

Key risks: Delays in Neelachal Ispat Nigam Ltd’s expansion, weaker-than-expected steel demand, lower spreads, and sustained high iron ore prices beyond FY30 could weigh on the outlook, Nomura cautioned.