There is positive sentiment for Tata Steel on the basis of strong domestic demand, a turnaround of European operations and moderate valuations.
A combination of capacity expansion, efficiency gains, higher asset utilisation, and improved operating leverage may lead to margin expansions.
Some investor concerns exist about potential loss of iron ore mines after 2029-30 (FY30) but Tata Steel may still remain the player with lowest raw material cost/tonne on account of holding non-auctioned captive mines even after FY30.
By the end FY26, Tata Steel's European operations may be operating profit positive, which will be a big boost.
The company is expanding India capacity to capitalise on domestic demand, targeting an increase from 26.5 million tonnes per annum or mtpa in FY25 to 40 mtpa by FY30.
The commissioning of 5 mtpa integrated capacity at Kalinganagar, increases the plant’s total capacity to 8 mtpa (at Rs 27,000 crore investment), with next phase-III expansion targeting 13 mtpa.
Other key projects include scaling the unlisted NINL (Neelachal Ispat Nigam) from 1 mtpa to 4.5 mtpa, a 0.75 mtpa electric arc furnace (EAF) at Ludhiana by FY27, and expanding capacity at Meramandali from 5.6 mtpa to 8.2 mtpa.
In Europe, Tata Steel is moving to green steelmaking, converting Port Talbot UK to a 3 mtpa EAF and exploring a gas-based route at Ijmuiden, Netherlands.
India's steel demand is projected to grow 8-10 per cent over FY26-27 and there’s protection from imports via a 12 per cent safeguard duty on flat steel products.
In H1FY26, steel imports in India declined 29 per cent Y-o-Y to 3 mt and exports rose 23 per cent Y-o-Y to 2.3 mt as exports to EU, West Asia, and Africa increased.
The H2FY26 may see gradual price recovery, muted costs and stronger demand.
The European operations are moving towards breakeven amid restructuring and cost optimisation.
Operating loss has narrowed from $76/tonne in Q2FY25 to a gain of $8/tonne gain in Q1FY26, due to lower energy costs and improved efficiency.
Given UK Blast Furnace shutdown and Netherlands ramp-up, Europe’s operating profit will improve from $8/tonne in Q1FY26 to $70/tonne by FY28.
Near-term challenges persist due to uncertainty around tariffs, but the long-term outlook looks good.
Tata Steel is expected to generate a strong operating cash flow of Rs 95,700 crore, which will help fund expansion costs of Rs 16,000 crore annually without additional leverage.
Net debt was Rs 84,800 crore as of Q1FY26, which translates to net debt to operating profit of 3.21 times as of June 2025.
In the Netherlands, a decarbonisation plan has support from the Dutch government.
The project is currently in the engineering and capital cost estimation phase.
A letter of intent will be presented to the Dutch parliament, and following elections, binding agreements will be negotiated.
In the UK, construction has commenced on a 3 mtpa EAF project at Port Talbot, for cost and carbon reductions.
Domestic hot rolled coil or HRC prices stood at Rs 49,500/tonne in Q2FY26, while China’s landed steel prices are at 15 per cent premium to domestic prices.
Hence, there’s room for domestic steel prices to improve.
The Rs 11,500 crore cost savings initiatives across India, UK, and Netherlands will see UK operations achieve breakeven by Q4FY26.
Of the total cost savings target of Rs 11,500 crore, Rs 4,400 crore (Rs 1,500 crore in FY25 and Rs 2,900 crore in Q1FY26) has been realised.
As operating profit of Europe rises to $70/tonne, consolidated operating profit/tonne will be about Rs 13,000 by FY28 (vs Rs 8,376/tonne in FY25).
Tata Steel's European operations also may be a beneficiary of reconstruction spending as and when the Ukraine War ends.
Post-war rebuilding, estimated at over $800 billion, will trigger a demand upcycle across Europe.
The domestic business provides solid earnings visibility till FY30.
The post-FY30 auction of captive iron-ore mines under the MMDR Act could raise costs but the policy focus on self-reliance and domestic capacity building should cushion profitability.
Management estimates potential operating profit uplift of Rs 3,500 crore by FY27.
Tata Steel currently trades at 2 times to its price-to-book value or P/BV.
Assuming book value of Rs 90 by Q2FY27 and a valuation upgrade to 2.5 times P/BV multiple, the fair value of Rs 225, implies upside of around Rs 44-45.
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