Tata Steel Upgraded to 'Buy' with Rs 240 Target for 2026

Anand Rathi Upgrades Tata Steel to 'Buy'

Domestic brokerage firm Anand Rathi has upgraded its rating on Tata Steel Ltd. to 'Buy' from 'Neutral', setting a new target price of Rs 240 per share. The revised outlook reflects a potential 24% upside from its recent trading levels and is based on improving steel realisations, strategic cost-cutting measures, and a significant turnaround expected in its UK operations.

European Market Dynamics Drive Positive Outlook

A key factor behind the upgrade is the changing regulatory landscape in Europe. The implementation of the Carbon Border Adjustment Mechanism (CBAM) in January 2026 is anticipated to create a more favorable pricing environment. This has already coincided with a sustained rise in EU steel prices, which have increased by approximately $100 per tonne over the last three months. This trend directly benefits established producers like Tata Steel.

Adding to this, the UK government's decision to align its steel import quota system with EU policy is viewed as a structural positive. Tighter quotas, effective from July 2026, are expected to reduce import pressure and create a more level playing field for Tata Steel's European business. This policy shift is crucial for the long-term stability and profitability of the company's operations in the region.

UK Operations Nearing Breakeven Point

Anand Rathi projects a significant milestone for Tata Steel's consolidated finances: the UK operations are now expected to achieve EBITDA breakeven by the second half of fiscal year 2027 (H2 FY27). For years, the UK business has been a drag on profitability. A turnaround to breakeven would mark a major inflection point, removing a significant financial burden and improving the company's overall earnings profile. The brokerage noted that the transition to a 3 million tonnes per annum (MTPA) Electric Arc Furnace (EAF) is on track, which will help eliminate long-term structural cost disadvantages.

Domestic Market Provides Solid Foundation

On the domestic front, Tata Steel's performance remains robust. The company has witnessed a sharp rebound in steel realisations during the fourth quarter. Average prices for hot-rolled coil (HRC) and primary rebar increased by 14.8% and 20.7% quarter-on-quarter, reaching Rs 54,165 and Rs 56,938 per tonne, respectively. This price improvement is tracking ahead of previous management guidance and is expected to support a standalone EBITDA per tonne of over Rs 15,000, indicating strong momentum heading into FY27.

Strategic Capacity Expansion in India

Tata Steel continues to strengthen its footprint in India through strategic capacity expansions. The recent commissioning of a 0.75 million tonne EAF facility in Ludhiana has increased its total domestic capacity to 27.35 million tonnes. The company has a clear long-term vision to scale its Indian capacity to 40 million tonnes by FY30. This growth will be supported by several key projects, including the expansion of NINL to 5.8 million tonnes and a 2.5 million tonne flat steel expansion at Meramandali.

Revised Financial Forecasts

Reflecting this positive outlook, Anand Rathi has raised its EBITDA estimates for Tata Steel for the upcoming fiscal years. The forecast for FY26 has been increased by 3.1%, for FY27 by 7.6%, and for FY28 by 5.6%. These revisions are based on the combined effect of firm EU pricing, strong domestic demand, an improving product mix, and expected price hikes in automotive contracts from April 2026.

Potential Risks to Consider

Despite the optimistic forecast, the brokerage also highlighted potential risks that could impact the company's performance. These include sustained losses in the UK operations if the turnaround takes longer than expected, potential delays in domestic capital expenditure projects, and the inherent risk of a downcycle in global steel prices. Investors will need to monitor the progress of the UK EAF project and the company's debt management strategies.

Conclusion: A Path to Sustainable Earnings

Anand Rathi's upgrade of Tata Steel is built on a combination of favorable regulatory changes in Europe, a projected turnaround in the UK, and continued strength in its core Indian market. The brokerage expects a more sustainable earnings trajectory as the UK business stabilises and domestic capacity scales up. While operational hurdles remain, the current outlook suggests a clear path toward improved profitability and margin expansion for the steel major.