Tata Steel Share Price Target at Rs 140: Motilal Oswal Suggests NEUTRAL Ratings
Tata Steel's recent investor call brought to light a bold transformation agenda focused on its European operations, particularly through Tata Steel Nederland (TSN). As the steelmaker combats global headwinds and subdued steel spreads in Europe, Motilal Oswal Financial Services has retained a NEUTRAL rating with a target price of Rs 140, representing a modest upside of 10% from the current market price of Rs 127. Strategic restructuring in the Netherlands, robust domestic fundamentals, and a cautious global outlook frame the essence of this advisory. The following sections unpack the rationale behind the call and what investors need to watch going forward.
TSN Restructuring Aims at EUR 500 Million in Savings by FY26
In an effort to realign its European cost base, Tata Steel Nederland (TSN) has initiated an expansive transformation program targeting a 15% reduction in operating costs by FY26. This equates to approximately EUR 500 million in projected savings.
The company plans to:
Standardize processes to drive operational efficiencies.
Automate workflows and remove redundancies.
Eliminate 1,600 positions out of 9,000 in Ijmuiden, Netherlands.
Of the total cost-saving goal, EUR 120–160 million is expected to come from employee-related expenses, with further upside of EUR 50–60 million in FY27.
Global Steel Market: Challenges Continue Amid Tariff Uncertainty
Tata Steel’s management acknowledged that European steel spreads have narrowed sharply due to:
Heightened geopolitical tensions.
Trade and supply chain disruptions.
Elevated energy costs across the Eurozone.
Although TSN’s exposure to the U.S. remains negligible, global steel markets are likely to remain sensitive to any trade escalation, particularly from protectionist measures in the West. This adds a layer of uncertainty to Tata’s international growth prospects.
India Business Remains the Anchor of Stability
Despite the international noise, Tata Steel’s India operations continue to deliver consistently strong results. The domestic segment remains a cornerstone of the company’s strategy:
Contribution from high-margin Indian operations supports blended EBITDA.
The UK operations are expected to break even by 2QFY26, a potential game-changer for consolidated profitability.
This divergence between domestic and overseas units explains why the company maintains a cautious but stable outlook in its consolidated projections.
Valuation Snapshot: Moderately Priced, But Upside Capped
Tata Steel is currently trading at:
| Valuation Metric | FY27E |
|---|---|
| EV/EBITDA | 5.6x |
| P/B | 1.6x |
| P/E | 8.2x |
| Dividend Yield | 5.5% |
The stock appears fairly valued at current levels, with limited re-rating scope unless there is a turnaround in European performance or stronger-than-expected domestic margins.
Key Financials and Forecast Highlights
Motilal Oswal estimates reflect significant earnings growth ahead:
| Metric | FY25E | FY26E | FY27E |
|---|---|---|---|
| Revenue (INR b) | 2,184 | 2,460 | 2,610 |
| EBITDA (INR b) | 258 | 356 | 434 |
| Adj. PAT (INR b) | 32 | 133 | 194 |
| EBITDA Margin | 11.8% | 14.5% | 16.6% |
| RoE | 3.7% | 15.6% | 20.9% |
While FY25 shows modest gains, the firm expects a step-up in returns and profitability by FY27 driven by operating leverage and margin expansion in both India and Europe.
Target Price Based on SOTP Valuation
Motilal Oswal’s sum-of-the-parts (SOTP) valuation model factors in:
India EBITDA: Rs 409 billion
Europe EBITDA: Rs 22 billion
Net Debt: Rs 838 billion
Total Equity Value: Rs 1,740 billion
Target Price: Rs 140 per share
The assigned multiples reflect conservative assumptions for European recovery, while India continues to receive a premium valuation.
Outlook and Investment Strategy
Motilal Oswal believes that near-term headwinds may cap upside but the long-term fundamentals remain intact. Tata Steel’s focus on:
Structural cost reforms in Europe.
Domestic growth led by infrastructure demand.
Green steel transition initiatives.
...all suggest a business that is adapting well to cyclical and regulatory pressures. However, investors should be mindful of:
Tariff-driven volatility.
Energy pricing shocks in Europe.
Progress of TSN restructuring.
Final Word for Investors
At a time when global steel players face macroeconomic challenges, Tata Steel’s proactive restructuring and stable India operations offer a reasonable risk-reward profile. The research house maintains a NEUTRAL stance, suggesting that while the upside is limited, the downside appears equally contained—making this stock a hold for now.
Disclaimer: Investors are advised to perform their own due diligence or consult with a financial advisor before making investment decisions.
