Tata Steel rallied 484% in 5 years: Does the stock have more upside?

Indian Express

4 days ago

'The finest steel must go through the hottest fire.' This quote by Richard Nixon aptly describes the resilience of India's leading steelmakers, including Tata Steel. Despite navigating intense challenges — from costly acquisitions and legacy issues in the UK to a shrinking global market — Tata Steel has emerged as India's most robust integrated steel company.
The last five years have been one of the best upcycles for the top three steel players. After bottoming out in the April 2020 pandemic crash, Tata Steel, JSW Steel, and Jindal Steel & Power Ltd. (JSPL) share prices surged 484%, 588%, and 931%, respectively. The Nifty Metal Index surged 525% during this time.
This rally is one of the longest cyclical uptrends for steel stocks since the 2003-2008 period, when the three stocks surged almost 1,000%. Investors who felt the heat of the 2008 financial crisis are reluctant to buy steel stocks near their peaks. While it took Tata Steel more than 12 years to cross its 2008 peak, Steel Authority of India (SAIL) is still trading below the 2008 levels.
The question now is: Is the cyclical uptrend sustainable? What factors should investors look for when investing in steel stocks?
Steel's strength, durability, and heat resistance make it essential for construction, infrastructure, railways, automotive, and industrial equipment. Robust growth in these sectors lifts steel demand.
Favourable tailwinds — lower interest rates, higher infrastructure spending, rising incomes, and supportive government policies — have all boosted India's steel consumption and incentivised capacity expansions.
Helping these sectors are reduced interest rates, rising investment in infrastructure, increasing income of consumers, government investment, and supporting policies to boost domestic manufacturing. All of these boost production and encourage companies to expand, driving steel demand.
India is the world's second-largest steel producer after China, but the production gap remains vast. China is also the largest consumer of steel. As a result, any significant shift in China's demand or supply directly affects global prices.
For instance, China's real estate market collapse in 2021 led to a prolonged downturn in the steel sector, pushing the country to offload surplus steel into global markets. Such dumping typically triggers tariffs or safeguard duties from importing nations to safeguard domestic industries.
A safeguard duty is more attractive than an anti-dumping duty as it also applies to Free Trade Agreement countries, which accounted for 51% of India's steel imports in calendar 2024.
Some positive global macro trends are emerging for Indian steelmakers in 2025.
China's policies to boost domestic consumption: In a bid to reduce emissions, the Chinese government asked Tangshan city, which produces around 140 million tonnes of crude steel annually, to curb production by 30% between July 4 and 15, according to Morgan Stanley's July 2 report.
The China Iron and Steel Association has also suggested that the government restrict billet exports. The government has also introduced stimulus measures to revive production and drive domestic demand for metals. These events will reduce the export of China's excess steel, reducing price competition for Indian steelmakers.
Geopolitical conflicts: A conducive trade environment improves steel demand by boosting factory production while making it easy to procure iron ore and coal.
However, geopolitical conflicts have disrupted the global supply chain, with many countries increasing safeguards. Moreover, the US tariff uncertainty has caused volatility in global markets. The surplus steel is finding its way into India, posing a threat to Indian steelmakers. Tariff talks between the US and other countries have increased hopes of easing the tariff burden and finding a more sustainable solution.
India's safeguard duties: To counter this, India has imposed a 12% safeguard duty on Chinese steel imports for 200 days. The duty will allow domestic companies to increase steel prices by around Rs 2,000-2,500 per tonne, as import price increases by approximately Rs 4,000 per tonne, according to Nomura analyst Jashandeep Singh Chadha. A higher price could increase the three Indian steelmakers' earnings before interest, taxes, depreciation, and amortisation (EBITDA) per tonne.
However, Tata Steel and JSPL have asked for a 25% safeguard duty as China continues to export about 100 million tonnes (mt) of steel.
Amid geopolitical uncertainty, domestic steel demand remains strong, and the availability of raw materials is robust. This has helped Indian steelmakers thrive during a period (2020-2024) when average global steel production was stagnant.
In FY25, India's crude steel output increased by 4.7% and consumption by 10.2%, driven by construction, urbanisation, and industrial growth supported by government initiatives like the National Manufacturing Mission, the Smart Cities Mission, and Production Linked Incentives. In FY26, India is poised to lead global steel consumption. The National Steel Policy envisages per capita steel consumption to grow from 98kgs in 2025 to 160 kgs by 2030.
Indian steelmakers are tapping the growing domestic demand by rapidly expanding capacity. JSW Steel has committed Rs 62,000 crore capital expenditure over the next three years to increase its capacity from 34.2 million tonne per annum (mtpa) to 42 mtpa by September 2027 and 50 mtpa by FY31. Tata Steel has also committed 75% of its Rs 15,000 crore capex for capacity expansion in India in FY26.
Tata Steel has an integrated business model. Its operations span from captive iron ore and coal mining to finished steel products, which helps it tightly control costs and improve production efficiency. It is involved in the upstream operations of producing crude steel and the downstream operations of using that steel to produce various grades of steel products for different applications.
In the upstream operations, Tata Steel commissioned a coke plant at Kalinganagar in January 2025, reducing its raw materials costs by 9.4% year-over-year and ensuring a low-cost supply. It is eyeing further investment in mining assets to boost capacity.
In the downstream operations, the company is innovating to transform semi-finished steel products into finished goods for various applications. It already has a strong presence in automotive and special steels, industrial products, and branded retail products. It has forayed into commercial shipbuilding by supplying grades to Mazagon Dock Shipbuilders, Garden Reach Shipbuilders, and Cochin Shipyard, said T V Narendran, CEO and MD, Tata Steel, at the Q4FDY25 earnings call.
In FY25, Tata Steel commissioned the 5 mtpa unit at Kalinganagar and operated all its Indian steel mills at full capacity, achieving a record crude steel production of 21.7 mt and deliveries at 20.9 mt. It turned around its acquired entity, Neelachal Ispat Nigam Limited, delivering Rs 1,000 crore in EBITDA.
FY26 could be a landmark year for Tata Steel as Tata Sons Chairman N Chandrasekaran has set a new goal to turn its UK operations EBITDA positive. Tata Steel UK's (TSUK) 2007 Corus acquisition became a persistent drag as the 2008 global financial crisis altered the world for steelmakers.
Despite aggressive turnaround strategies, legacy costs, the UK's shrinking steel industry, oversupply from cheap Chinese steel imports, raw material challenges, and poor employee productivity forced the company to consider divestment in 2016 and 2022. After years of reporting exceptional losses, Tata Steel officially put off the fire at its UK blast furnace in September 2024, which has been burning more cash than coal. This will reduce Tata Steel's fixed costs going forward.
From FY26 onwards, TSUK's business model will be downsized from integrated steelmaking to a downstream-only processing-based model. It will produce steel products from steel substrate imported largely from India. It plans to reduce costs by another €500 million in FY26 by maximising volume, optimising product-mix, enhancing maintenance practices, and boosting employee productivity. Its long-term goal is to sustain the low cost.
Tata Steel is replacing a coal-powered blast furnace in the Netherlands with an Electric Arc Furnace (EAF). The EAF will use recycled scrap and have an annual capacity to produce 3.2 million tonnes of low-emission steel once fully operational by 2027. This, and India's expansion projects, have increased Tata Steel's capex and debt.
Is the Tata Steel stock a buy near its 52-week high?
Speaking at the 186th anniversary celebration of Tata Steel founder JN Tata in Jamshedpur on March 3, N Chandrasekaran said Tata Steel is dealing with the global geopolitical situation by maintaining efficiency, managing cost, and increasing productivity.
It is on track to achieve its twin goals of growth in India and transformation in Europe. With the high fixed cost of the UK operations now behind it, the company is left with a net debt of Rs 82,579 crore. It aims to reduce this debt through internal accruals and external funding. It has a debt-to-equity ratio of 1.04, lower than JSW Steel's 1.24x but higher than Jindal Steel & Power's 0.39x.
Tata Steel is also focusing on cost optimisation and aims to reduce its cost by Rs 11,500 crore in FY26 to improve competitiveness.
Tata Steel's Cost and Efficiency Program FY26 Target
ICICI Securities has a Buy rating on Tata Steel with a target price of Rs 200, a 23% upside from the current market price of Rs 162. It is bullish on the company's strategic capacity expansion in India and cost optimisation of its Indian and European operations.
Global brokerages JP Morgan and Morgan Stanley are bullish on Tata Steel UK operations turning profitable. However, the market has already priced in expectations of positive EBITDA from the UK operations.
The right metric to value steel stocks is to look at Enterprise Value (EV)/EBITDA. The EV/EBITDA multiple tells us how efficiently a company is using its debt, equity, and cash to earn EBITDA.
Tata Steel is trading at an EV/EBITDA multiple of 10.74x, lower than JSW Steel's 14.56x and Jindal Steel & Power's 11.53x, hinting at a better operational efficiency than its peers. If you are bullish on steel stocks, Tata Steel could be a good addition to your portfolio.
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
Puja Tayal is a financial writer with over 17 years of experience in the field of fundamental research.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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