Tata Steel Ltd. seems to have just about everything going for it ahead of next week's quarterly earnings report.
A ratings upgrade by S&P Global Ratings this week -- its second in 2021 -- is burnishing the appeal of the stock that's already surged on the back of a global commodities boom and the firm's aggressive debt-reduction efforts. Up about 117% this year, Tata Steel is the top performer on India's benchmark NSE Nifty 50 Index, and on course for its biggest annual jump since 2009.
"We still see more upside for Tata Steel and its structural in nature --backed by expectations of strong performance from Indian as well as European business," said Ashutosh Somani, an analyst with JM Financial Institutional Securities Ltd. He expects Tata's European business to post robust profits for the June quarter, aided by an improving demand scenario as highlighted by ArcelorMittal, which reported blockbuster results last month.
While steel producers globally are gaining from the surge in prices amid a demand recovery, Mumbai-based Tata Steel -- which is one of the most integrated mills in India with access to own iron ore sources -- also benefits as major producers China, Russia and Japan are looking to curtail exports.
"With three major players talking of slowing down exports, there is going to be vacuum," Siddharth Gadekar, an analyst with Mumbai-based Equirus Securities Pvt. said via phone.
An improving balance sheet is aiding the bullish sentiment as Tata Steel joins scores of Indian corporates who are using record-low interest rates to trim their liabilities.
Its debt is expected to drop by more than 30% to 600 billion rupees ($8.1 billion) by March 2023 from its March 2021 level, exceeding the company's goal of reducing debt by at least $1 billion per year, according to S&P Global, which raised the firm to BB from BB- on Tuesday, following an upgrade in April.
"The stable outlook reflects our expectation that Tata Steel will continue deleveraging to improve its resilience to downturns," S&P said in a statement. Tata Steel's dollar bonds due 2028, one of India's best performing notes, have gained 4.7% this year.
Meanwhile, the stock's sharp rally amid a bullish Indian equity market means it is just a whisker away from analysts' average 12-month target price of 1,425.34 rupees. Still, of the 33 analysts tracking Tata Steel, 28 have buy calls, four have a hold rating and one analyst has a sell call, according to data compiled by Bloomberg.
Earnings could help determine the near-term share performance. The company is expected to report a record net income of more than 90 billion rupees on revenue of 523 billion rupees for the June quarter, according to estimates compiled by Bloomberg. The stock was down 1.4% in early trading in Mumbai on Thursday.
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