Axis Securities has maintained a cautiously optimistic stance on Tata Steel after the company delivered a stronger-than-expected operational performance in the March quarter of FY26. However, despite robust earnings momentum in India and improving European operations, the brokerage has downgraded the stock to a HOLD rating from BUY, citing limited upside from current levels and lingering uncertainties in the Netherlands business.

Axis Securities Downgrades Tata Steel to HOLD Despite Strong Q4FY26 Performance

Axis Securities has assigned a HOLD rating on Tata Steel with a revised target price of Rs 235 per share, compared with the previous target of Rs 220. The brokerage noted that the stock’s current market price of Rs 217 already captures a significant portion of the company’s operational recovery and expansion-led optimism. The revised target implies an upside potential of nearly 8% from current levels.

The brokerage acknowledged that Tata Steel’s Q4FY26 performance exceeded both its own expectations and Street consensus on the revenue and EBITDA fronts. Consolidated adjusted EBITDA surged 53% year-on-year to Rs 9,946 crore, while revenue climbed 13% to Rs 63,270 crore. However, adjusted profit after tax marginally missed estimates, coming in at Rs 3,266 crore.

India Operations Continue to Drive Earnings Momentum

The Indian business remained the biggest earnings contributor, supported by strong steel demand, improved realizations and operational ramp-up at Kalinganagar Phase II.

Axis Securities highlighted that Tata Steel India’s EBITDA for FY26 rose 17% year-on-year to Rs 33,036 crore, with margins improving sharply to 24% from 21% in the previous year. Q4 EBITDA per tonne stood at an impressive Rs 15,245 per tonne, outperforming brokerage estimates by nearly 4%.

The brokerage said the improvement was largely driven by:

• Higher net sales realizations (NSRs)
• Record sales volumes
• Operational efficiency gains
• Contribution from Kalinganagar Phase II commissioning

Management expects consolidated steel volumes to increase by nearly 2 million tonnes in FY27, primarily led by the full-year contribution from KPO-II and initial production from the 0.75 MTPA Ludhiana electric arc furnace facility.

European Business Shows Recovery but Risks Persist

While Tata Steel Europe delivered sequential improvement, the Netherlands business remains the key overhang for investors.

The Netherlands division reported EBITDA of Rs 624 crore during the quarter, aided by higher deliveries and better operating conditions. However, environmental authorities in the region have initiated actions that may eventually force the early closure of Coke and Gas Plant 1 and 2.

Axis Securities cautioned that:

• Closure uncertainty may affect near-term profitability
• Nearly 2.5 months of downtime at the DSP facility in Q1FY27 could result in production losses exceeding 200,000 tonnes
• Higher imported coke costs could pressure margins

Despite these risks, Tata Steel management remains optimistic that the Netherlands business can continue generating positive EBITDA even after the closure of the coke plants through external sourcing arrangements.

Meanwhile, the UK business also displayed signs of stabilization. Quarterly EBITDA losses narrowed to £48 million from £111 million per tonne losses in Q3FY26. Management expects the UK operations to move closer toward breakeven in the second half of FY27, supported by safeguard measures and higher domestic steel penetration.

Expansion Pipeline and Downstream Focus Remain Long-Term Catalysts

Tata Steel continues to prioritize value-added downstream expansion over aggressive upstream volume growth.

The company has outlined an ambitious strategy to increase its downstream product mix substantially over the next few years. Key targets include:

Management intends to increase the contribution of downstream value-added products to nearly 50-60% of total volumes over time. According to Axis Securities, this richer product mix could potentially enhance EBITDA by 5-10% over traditional steel operations.

Additionally, Tata Steel plans to spend nearly Rs 20,000 crore in capital expenditure during FY27, with over 60% allocated toward Indian operations.

Financial Performance Highlights Remain Robust

Tata Steel’s operational and financial metrics improved materially across most key indicators during FY26.

The company also recommended a dividend of Rs 4 per share.

On the balance sheet front, Tata Steel continued deleveraging efforts successfully. Net debt-to-EBITDA improved to 2.3x compared with 3.3x two years ago, while free cash flow rose sharply to Rs 20,505 crore during FY26.

Demand Environment Remains Supportive for Domestic Steel Producers

Management remains optimistic on Indian steel demand growth despite pockets of macroeconomic uncertainty.

Tata Steel expects domestic steel demand growth of 8-10% in FY27, primarily driven by infrastructure spending and strong automotive demand. Passenger vehicle and two-wheeler demand trends remain healthy, although management flagged some concerns around construction activity due to labor shortages and MSME liquidity pressures.

The brokerage also noted that global flat steel pricing trends have become more supportive due to declining Chinese exports and rising export prices from China. This could provide an additional cushion to realizations going forward.

Valuation Outlook and Investment View

Axis Securities has revised its valuation framework using a sum-of-the-parts methodology while rolling forward estimates to March 2028 EBITDA multiples.

The brokerage now values:

• India operations at 7.5x EV/EBITDA
• Europe operations at 6.0x EV/EBITDA
• Other businesses at 6.0x EV/EBITDA

This results in a revised target price of Rs 235 per share. However, with limited near-term upside and continuing regulatory uncertainty in Europe, the brokerage believes investors should maintain a neutral stance on the stock at current valuations.

Key investor levels to watch:

Investors may continue monitoring developments in the Netherlands regulatory situation, European profitability recovery, and the pace of downstream expansion in India, which are likely to remain the primary catalysts for Tata Steel over the next 12 to 18 months.