ICICI Securities has maintained a “Buy” rating on Tata Steel, assigning a target price of Rs 180, implying a robust upside potential of 42% from its current level of Rs 127. This recommendation stems from the company's aggressive transformation roadmap in Europe, a renewed cost discipline, and an improving margin outlook. Despite global macro headwinds, Tata Steel’s strategic capital discipline, limited U.S. exposure, and long-term sustainability goals position it as a structurally attractive play in the global metals space.

Strategic Transformation Underway at Tata Steel Netherlands (TSN)

Tata Steel has launched a one-year transformation plan at its Netherlands subsidiary (TSN), aiming to unlock significant cost savings and operational efficiencies.

The roadmap includes:

Structural cost containment across procurement, blast furnace fuel rates, and capacity utilization.

15% YoY reduction in controllable costs (which make up 40% of the overall cost base), expected to save over EUR 500 million in FY26 and an additional EUR 50–60 million in FY27.

1,600 job redundancies planned out of 12,000 total employees, focused largely at the Ijmuiden facility.

These efforts are expected to lift EBITDA/tonne to EUR 70–80 sustainably, versus the current EUR 13–15 level.

Limited Exposure to U.S. Tariffs Mitigates Downside Risk

With recent tariff escalations by the U.S., Tata Steel’s operations remain insulated:

India, which contributes 75% to Tata Steel’s sales volume, has minimal exposure to the U.S. market—just 1–2kt directly and 10–15kt indirectly.

TSUK (UK operations) exports 88kt to the U.S., while TSN sends about 670kt of high-grade steel to American automotive and packaging industries.

Management confirms that overall exposure to the U.S. remains negligible at 0.1% of consolidated volumes, limiting regulatory overhang.

Transformation in Europe Aligns with CY30 Green Steel Goals

Tata Steel is aligning its Dutch operations with long-term decarbonization targets:

As part of the Green Steel Transition, one blast furnace will be replaced with a new Direct Reduced Iron (DRI) and Electric Arc Furnace (EAF) by 2030.

Discussions are ongoing with the Dutch government and regulatory stakeholders.

The transformation not only aids in carbon neutrality but also supports sustainable long-term margin expansion across European operations.

Strong Financial Recovery Projected Over FY25–27

ICICI Securities forecasts a steep earnings recovery over the next three years:

EBITDA expected to grow from Rs 2,23,059 million in FY24 to Rs 4,09,112 million by FY27, translating to margin expansion from 9.7% to 16.5%.

Net profit is forecast to surge 5x to Rs 1,40,024 million in FY27, compared to Rs 22,271 million in FY24.

EPS is estimated at Rs 11.4 by FY27, up from Rs 1.8 in FY24.

These earnings upgrades are driven by volume recovery, cost transformation, and improved spreads in global steel markets.

Valuation Remains Attractive Despite Near-Term Volatility

At the current market price of Rs 127, Tata Steel trades at:

10.7x FY27E earnings and

5.3x EV/EBITDA

This valuation reflects investor skepticism around European steel margins and domestic demand but fails to capture the upside from:

Structural cost efficiencies at TSN,

Stable growth in Indian operations, and

Free cash flow turnaround (Rs 1,73,112 million projected in FY27 from negative in FY25).

Key Metrics and Projections

Shareholding and ESG Snapshot

As of December 2024:

Promoters held 33.2%

Institutional investors at 41.6%

ESG Score: 69.0 (slightly down from 69.6 in 2023)

Environment: 54.2

Social: 71.2

Governance: 81.4

Tata Steel continues to maintain high governance scores, while environmental initiatives under the Green Steel transition are expected to lift its E-score in future years.

Risks to Outlook

While the outlook is bullish, the report identifies three downside risks:

Delays in the UK transition strategy, which could stretch restructuring costs.

Cost overruns in European transformation efforts.

Failure of domestic demand to rebound meaningfully in FY26.

Long Term View: Deep Value in Structural Realignment

Tata Steel stands at a compelling inflection point. With its aggressive transformation plan at TSN, a commitment to green steel by 2030, and robust capital discipline, the company is poised to deliver superior shareholder returns. ICICI Securities’ reiterated “Buy” call and Rs 180 target underscore this conviction, offering a 42% potential upside from current levels. For long-term investors seeking a blend of deep value and sustainable growth, Tata Steel offers a compelling narrative forged in operational grit and strategic vision.