Brokerage firms like Sharekhan and Prabhudas Lilladher are positive on 2 Tata Group stocks despite the market’s volatility. Sharekhan has suggested to purchase Tata Consultancy Services (TCS) with a target price of Rs. 4,200, signaling a potential upside of 16.58% from the current market price, while Prabhudas Lilladher is optimistic on Tata Steel with a target price of Rs144 signaling a possible gain of 13.65%.
A. Tata Steel
According to Prabhudas Lilladher’s research experts, Tata Steel has proposed installing a 3 mtpa electric arc furnace at its Port Talbot steel manufacturing site for a capex of GBP 1.25 billion. The planned project will get a GBP500 million grant from the UK government (40 percent of the project cost) and sufficient policy support for a seamless transition to green steel production in the UK at a competitive price. With this agreement, the first step of the procedure is finished, but the next three months are anticipated to see the end of the union consultations.Following a successful consultation, and subject to necessary regulatory clearances, capex is planned over the following three years.
“We believe that the Tata Steel UK (TSUK) transition is EPS accretive given that current cash losses will end because the company will import substrate rather than producing at old facilities, b) one-time costs will exist, but TSUK is expected to be in a better situation than earlier cases of recurring cash burn, c) volatility in coking coal prices won’t directly affect TSUK earnings, and d) likely fall in energy costs because UK is moving towards renewable sources. We introduce FY26E earnings forecasts and increase our FY25E EBITDA predictions by 5% to Rs411 billion. Maintain ‘Buy’ at the new target price of Rs. 144 (formerly Rs. 137), allocating an EV/EBITDA multiple of 5x to the TSE’s FY25E EBITDA, the brokerage said.
We cut maintenance capex a little because old assets won’t need maintenance any longer, incorporating TSUK capex of USD1.55bn (GBP1.25bn) over FY25-27E. Although production from the new TSUK project won’t begin until FY28, the brokerage continued, “With ongoing efforts by TSUK, sustainable EBITDA/t of USD100/t for consolidated TSE (Tata Steel Europe) looks achievable as importing substrate will resume in FY25. Tata Steel Netherlands is also profitable.
The deal momentum for TCS has been strong despite the uncertain business environment, with average contract wins of about $8.9 billion between Q1FY23 and Q1FY24 (stronger deal wins of $1 billion plus in the more recent quarters). The company recently secured significant contracts from JLR/NEST and BSNL, with deal TCVs of $1bn/$1.1bn and $1.8 billion, respectively. These significant deals would provide its revenue growth profile more durability. TCS is in a good position to take market share in this competitive climate thanks to its excellent subject expertise, regional reach, and cross-selling capabilities, according to a note from the brokerage firm Sharekhan.
“The new CEO’s overhaul of the organizational structure is anticipated to allay worries and promote growth. Discretionary spending is anticipated to steadily increase starting in CY24, along with a shorter contract win cycle and a quicker conversion of the transaction pipeline to revenues, as concerns about macroeconomic uncertainty decline from high levels. Despite the difficult climate, we think TCS is well positioned to seize cost-cutting initiatives, digital transformation projects, and vendor consolidation opportunities. As a result, we continue to rate TCS as Buy and have a revised price target (PT) of Rs. 4,200. The firm continued, “At the CMP, the stock trades at 25.5x/22.8x its FY25/26E EPS.
“We think that despite the difficult climate, TCS is well positioned to seize cost-cutting initiatives, digital transformation programs, and vendor consolidation possibilities, which are evident in excellent deal wins. We have adjusted the FY24E/FY25E earnings predictions and added FY26 earnings estimates. Over the course of FY23–26E, we anticipate a 9%–11.2% CAGR in Sales and PAT, according to Sharekhan’s research analysts.
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Tata Group 2 Stocks Buy Next Week For Potential Upside of Up To 16%