- India’s steel demand is set to rise 8‑10% FY26‑30, creating a tailwind for Tata Steel’s capacity hike.
- The company plans to lift total capacity from 26.5 mtpa to 40 mtpa by FY31 – a 50% jump.
- Annual capex of ~INR 160 bn funds new integrated plants, a low‑carbon demo unit, and European EAF conversions.
- Current valuation: 7.7x EV/EBITDA and 2.3x FY27E P/B – a steep discount to global peers.
- Target price INR 240 implies ~30% upside from today’s price.
You missed the capacity‑boom signal, and your portfolio paid the price.
Why Tata Steel’s Capacity Surge Beats Sector Growth Forecasts
India’s steel consumption is projected to climb 8‑10% annually through FY30, driven by infrastructure spend, housing demand, and a resurgence in automotive production. While the macro view suggests a modest uptick, Tata Steel’s aggressive rollout—adding 13.5 mtpa of fresh capacity—far outpaces the average industry expansion of 4‑5 mtpa over the same horizon. This mismatch creates a supply‑demand gap that can translate into pricing power for Tata’s higher‑margin products, especially as the new 0.75 mtpa electric‑arc furnace (EAF) in Ludhiana will focus on retail‑grade steel with premium margins.
How Tata’s Green Steel Projects Reshape the Competitive Landscape
Beyond sheer volume, Tata is rewriting the rules of steelmaking with low‑carbon technology. The Jamshedpur demonstration plant will pilot Hisarna’s hydrogen‑based direct‑reduction, positioning Tata as a first‑mover in India’s green steel race. In Europe, the conversion of Port Talbot (UK) to a 3 mtpa EAF and the exploratory DRI‑EAF route at IJmuiden (Netherlands) signal a strategic pivot toward carbon‑neutral production. Competitors such as JSW and SAIL are still heavily reliant on traditional blast furnaces; Tata’s early adoption could earn it preferential access to ESG‑focused capital and policy incentives, tightening the competitive moat.
Technical Valuation: EV/EBITDA at 7.7x vs Peer Multiples
At a current enterprise‑value‑to‑EBITDA multiple of 7.7x, Tata Steel trades well below the global steel average of 9‑10x and even below Indian peers like JSW Steel (≈8.5x). The price‑to‑book ratio of 2.3x FY27E further underscores a valuation discount. Adjusting for the expected uplift in EBITDA margins—from 12% today to an estimated 15% post‑EAF rollout—the forward‑looking EV/EBITDA could compress to sub‑6x territory, unlocking substantial upside. Moreover, the target price of INR 240 is derived from a Sum‑of‑the‑Parts (SoTP) methodology that values each green‑steel venture separately, reflecting the premium investors assign to sustainability.
Historical Parallel: Past Capacity Expansions and Share Price Reaction
The last time Tata Steel executed a comparable capacity jump (2006‑2010), the share price rallied over 45% within 18 months, fueled by a concurrent demand surge and a favourable rupee. A more recent example is JSW Steel’s 2022 acquisition of a 2.5 mtpa plant, which triggered a 22% price jump as investors priced in higher output and better product mix. These precedents suggest that markets reward clear, fundable expansion plans, especially when paired with operational efficiency gains.
Investor Playbook: Bull and Bear Cases for Tata Steel
- Bull Case: Continued demand acceleration, successful green‑steel pilots, and a valuation gap relative to peers combine to deliver 30‑35% upside to the INR 240 target. The EAF roll‑out improves margins, while ESG credentials attract premium capital.
- Bear Case: Delays in capex execution, higher-than‑expected input costs (coking coal, electricity), or regulatory setbacks on low‑carbon projects could compress margins and stall the price rally. A prolonged global steel oversupply would also pressure pricing.