Tata Steel, UK Government Jointly Plan To Invest In EAF Facility At Port Talbot: Motilal Oswal

Motilal Oswal Report

Tata Steel Ltd. and the UK government today announced their plan to invest in a three million tonne electric arc furnace facility at Port Talbot. The project is expected to take about 36 months to complete, contingent upon obtaining all necessary regulatory approvals.

The proposed agreement will require a total investment of £ 1.25 billion (including a grant of £500 million by the UK government) and the facility will help curb emissions of up to 50 million tonne over the next decade.

Tata Steel would undertake consultations with unions and stakeholders on the proposed transition in the coming weeks.

Tata Steel UK has been facing multiple challenges as its assets approach the end of their operational lifespan. The proposed agreement reflects Tata Steel’s commitment to securing the ongoing continuity of steel manufacturing at the Port Talbot facility.

Valuation and view

While progress towards resolving the UK facility, which is nearing the end of its useful life, is encouraging, we await more clarity on financials, write-offs and other operational details. We anticipate the release of these information in the upcoming months, particularly after the Q2 FY24 results.

The stock is currently trading at 6.3 times FY25E enterprise value/Ebitda and 1.4 times FY25E price/book.

We have kept our estimates unchanged and reiterate our 'Neutral' stance on the stock with an SoTP-based target price of Rs 120 (unchanged).

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