Tata Steel shares climb to eight-month high; here's the new target price

Shares of Tata Steel are trading at eight-month high today, breaking out from the long consolidation cycle in 2022. In fact, the Tata Steel stock has gained 34.50% or Rs 30 in the last six months, lending a reprieve to investors waiting long for the upmove. The Tata Group stock, which closed at Rs 117 on May 20, 2022  hit the same level in trade today, rising to the eight-month level during the period. The stock has entered bullish zone on the technical charts on a weekly basis. In the current trading session, the Tata Steel stock gained after two sessions of fall. The stock is trading higher than the 5-day, 20-day, 50-day, 100-day and 200-day moving averages.

In another bullish signal for the stock, Tata Steel traded at the steepest discount over its 10-year average, data compiled by Motilal Oswal Securities show. The stock traded at a PE of 7.3 times as on December 30, which was at 61 per cent discount over a 10-year average of 18.9 times.

The relative strength index (RSI) of Tata Steel stands at 58.6, signaling it's neither oversold nor undersold. Tata Steel stock has a one-year beta of 1.3, indicating high volatility during the period. The shares have delivered flat returns during one year, month and a week.

In the current trading session, the Tata Steel stock was trading 0.52% lower at Rs 115.10 against the previous close of Rs 115.70 on BSE.

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The stock touched an intraday high of Rs 116.95 on BSE. Earlier, it opened higher at Rs 116.40. Total 7.82 lakh shares changed hands amounting to a turnover of Rs 9.05 crore on BSE. Market cap of the firm rose to Rs 1.40 lakh crore. The stock has gained 38.63% from its 52-week low.

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 on BSE. The large cap stock is trading 29% lower to its 52-week high.

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The second quarter earnings of the firm were not as per expectations. Tata Steel reported a 87% year-on-year fall in consolidated net profit to Rs 1,514 crore for the quarter ended September on a year-on-year (YoY) basis. Sequentially, the profit declined 80 percent. Consolidated revenue of the Tata group company remained flat with a marginal decline of one percent year-on-year to Rs 59,878 crore. Sequentially, revenue slipped 6 per cent.

Here's a look at the outlook of the stock during the current leg of rally.

Brokerage Jefferies has assigned a buy call to the firm against the previous hold stance. While turning positive on Tata Steel, the brokerage has given a 12-month target of Rs 150.

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"After almost a year of cautious view, we turn positive on India metals. China has started to ease Covid policy and support its ailing property sector. We believe worst-margin quarter for Indian steel, and the big chunk of earnings cuts for Tata Steel and Hindalco are behind," Jefferies said.

Jefferies said it likes Tata's improving asset footprint with share of India in total volumes up from 33 per cent  in FY15 to 62 per cent in FY22. Tata's 5mtpa brownfield expansion should also start contributing to volumes by FY25, it said, adding that the brokerage expects share of higher-margin India-business in Tata Steel's consolidated volumes to rise to 67 per cent by FY25E.

"We expect Tata Steel to generate negative free cash flow (after interest payment) in FY23 with NINL acquisition and working capital outflow, but see this turning positive in FY24-25E to Rs 11-13 per share," it said.

ICICIdirect expects Tata Steel to move toward Rs 127, which is 80 per cent retracement of April-June 2022 decline (R138-83) over the next few months while strong support is placed at Rs 98.

On the technical side, ICICIdirect said Tata Steel's share price is seen resolving out of six months base formation, which resembles a cup and handle bullish formation. It said the stock has formed a strong base around Rs 100 over the past few months, factoring in a host of negatives. The brokerage said last week's price action formed a Bullish Engulfing candlestick that led to a breakout above its six month's range, indicating a revival of the positive trend.

Rupak De, Senior Technical Analyst at LKP Securities said, "The stock recently broke out above its previous swing high, raising bullishness. The price has moved above all major moving averages on the daily timeframe. The strength indicator RSI is in bullish crossover. Over the short term, a positive trend can prevail in the stock. On the higher end, the stock can move up towards Rs 125/ Rs 130; support on the lower end is visible at  Rs 115."

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