Tata Steel's Rating, Target Price Retained By Morgan Stanley As It Awaits UK Business Clarity
There's a lack of clarity on additional cost for this MoU, the brokerage said.
Tata Steel Ltd. received a 500 million pound grant from the UK government for electrification of its arc furnace in Port Talbot, which is a positive development as it had been an overhang. However, more clarity on additional project costs, financial support to affected employees is required as it signed a new agreement with UK Steel Committee, Morgan Stanley said.
The brokerage kept an 'underweight' rating on the stock, and retained a target price of Rs 135 per share, implying a downside of 8.9% from Wednesday's closing price.
The grant agreement with the British government is in line with Tata Steel's earlier announcement for the UK business, Morgan Stanley said. The company will invest another 750 million pounds to install the electric arc furnace plant at Port Talbot.
Tata Steel has also signed a Memorandum of Understanding with the UK Steel Committee. There's a lack of clarity on additional cost for this MoU. Tata Steel proposed to give 230-million pound support package to the Transitioning Board of UK and Welsh governments for affected employees.
Morgan Stanley has given more weightage to the bear case scenario than bull, noticing unfavourable demand and supply condition, concerns about macroeconomic outlook and uncertainty over steel prices. The bear case probability is 20%, compared to 10% for bull case, and base case probability is 70%.
Key Downsides
Sharp correction in international steel prices.
Deeper-than-expected losses in Europe.
Key Upsides
Improvement in Indian steel demand growth and recovery in steel prices.
Faster-than-expected improvement in global macroeconomic environment, thereby driving improvement in the European business.
Tata Steel Ltd. shares rose as much as 2.88%, the highest level since Sept. 6. They gave up gains to trade 1.2% higher at Rs 149.93 per share as of 10:18 a.m., compared to a 0.39% rise in the NSE Nifty 50.
The stock gained 16.35% in 12 months, and 7.39% year-to-date. Total traded volume so far in the day stood at 0.51 times its 30-day average. The relative strength index was at 40.93.
Out of 32 analysts tracking the company, 14 maintain a 'buy' rating, nine recommend a 'hold' and nine suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 11.5%.
