Tata Steel shares in consolidation mode in last one year, analysts not enthused; here's why

Shares of Tata Steel are consolidating in a range during the last one year, prompting investors to sit on the fence and wait for a breakout in the Tata Group stock. Tata Steel stock, which closed at Rs 118.19 on February 21, 2022 was trading at Rs 111.80 in early trade today, consolidating into a narrow range during the period. It hit a closing low of Rs 83.81 on June 22, 2022 and high of Rs 137.07 on April 8, 2022 in the last one year. In today’s trade, Tata Steel shares fell after five days of gain. Shares of Tata Steel opened marginally higher at 112.55 against the previous close of Rs 112.30 on BSE today.

The stock has lost 6% in a year and fallen 0.62% this year. At 10:25 am, Tata Steel shares were trading 0.18% lower at Rs112.10. Total 7.34 lakh shares changed hands amounting to a turnover of Rs 8.21 crore on BSE.

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Market cap of Tata Steel fell to Rs 1.36 lakh crore. The stock hit a 52-week high of Rs 138.63 on April 6, 2022 and a 52 week low of Rs 82.71 on June 23, 2022.

In terms of technicals, the relative strength index (RSI) of Tata Steel stands at 43.5, signaling it's neither oversold nor overbought. Tata Steel stock has a one-year beta of 1.2, indicating high volatility during the period. Tata Steel shares are trading higher than 5 day, 100 day and 200 day moving averages but lower than 20 day and 50 day moving averages.

The net profit of the Tata Group firm has grown at 24.48% (Compounded annual growth rate) CAGR during the last five years.

Pavitraa Shetty from Tips2trades said, "Long term resistance is at 139. A weekly close above this level could lead to a breakout target of 165. Strong support will be at 97.5."

Anand Rathi has maintained its buy rating on Tata Steel with a target price of Rs 133.

“The company is among the most geographically diversified steel producers in the world and is one of the top global steel companies with an annual crude steel capacity of 34 million tonnes per annum and has operations and commercial presence across the world. During the quarter, the company witnessed the full impact of correction in steel prices after the imposition of export duty in India. Tata Steel's overall consolidated sales volumes are expected to 0.5 MT, higher compared to Q3FY23. We remain positive on Tata Steel and maintain our BUY rating with revised target price of Rs 133,” the brokerage said.

Abhijeet from Tips2trade said , "Tata Steel has a strong resistance at Rs 113 on the Daily charts. A close above this level could be bullish and lead to targets of Rs 122-128 in the near term. Support will be at Rs 107.5."

However, Ravi Singhal, CEO of GCL is bearish on the stock.

“Tata Steel stock looks weak for a target of Rs 95 with a stop loss of Rs 121. The stock has been making lower lows and lower highs on the charts. The Q3 earnings results also come negative,” said Singhal.

Mileen Vasudeo, Senior Technical Analyst, Arihant Capital Markets said, "The stock trend remains down. The scrip has taken support at 150-day SMA (Rs 107) and is seeing a pullback rally. Hence, one can hold short position with a stop loss placed at Rs 121 for a target between Rs 104 and Rs 96 levels in the next couple of weeks."

ICICI Direct Research sees Tata Steel reaching Rs 130 in 12 months. "Going forward, for the Tata Steel Standalone operations, we model EBITDA/tonne of Rs 13500/tonne for FY23E and Rs 17000/tonne for FY24E. Going forward, for Tata Steel European operations, we model EBITDA/tonne of US$100/tonne for FY23E and US$60/tonne for FY24E. We value Tata Steel at Rs 130, based on SoTP valuation," the brokerage said.

Sumeet Bagadia, Executive director, Choice Broking said, "Tata Steel has a dominant presence across the entire value chain of steel manufacturing from mining and processing iron ore and coal to producing and distributing finished products. In the NSE metal index, Tata Steel has the highest weightage containing 21.98 percent share value. As the metal sector has been in the limelight amid China's reopening, steel stocks have remained resilient in the recent market correction. On July 28, 2022 Tata Steel last changed the face value of each of its shares from Rs. 10 to Rs 1. Over a longer period of time, the stock has remained in consolidation and has had less participation in benchmark indices and metal indices. As the Sensex rose 5.37% in the last one year but stock has underperformed losing 5.67 percent comparatively. In the weekly chart, the stock is forming Higher High - Higher low indicating that the stock is rebounding from lower levels. Also, the stock has managed to remain above the middle Bollinger band supporting the price action. Currently, the stock is trading higher than the 100 and 200 day moving averages but lower than 20 and 50 day moving averages. Commodity Channel Index oscillator which measures the current price level relative to an average price remains at -54. Once it moves above zero, price would move towards north direction. In the past one-month delivery volume increased by 18.97 percent indicating good upside traction coming in a few weeks. As this stock has always been the wealth creator over the past many decades, investors must not lose faith as the stock price remains in the consolidation phase. At the current market price, now is the best time for new investors to accumulate this blue chip stock."

In the December 2022 quarter, Tata Steel logged a net loss of Rs 2,502 crore as against net profit of Rs 9,598 crore in the year-ago period on account of higher expenses.

Tata Steel’s revenue from operations slipped 6% to Rs 57,084 crore in Q3FY23 as compared to Rs 60,783 crore in Q3FY22.

Net debt stood at Rs 71,706 crore, with net debt to EBITDA at 1.76x and net debt to equity at 0.65x. Consolidated EBITDA stood at Rs 4,154 crore, with an EBITDA margin of 7% in the last quarter.

For the India business, the company logged a profit of Rs 1,918 crore with a revenue of Rs 32,325 crore for the period under review.

For the fiscal ended March 2022, Tata Steel logged a 436% rise in net profit to Rs 40,153.93 crore against Rs 7490.22 crore in the March 2021 fiscal. Sales zoomed 56.09% to Rs 2.43 lakh crore in the last fiscal against Rs 1.56 lakh crore in the fiscal ended March 2021.