CLSA’s position in Tata Steel remains positive

CLSA maintains its buy rating on Tata Steel and maintains its target price of Rs. 1362 per share. According to the firm, a focus on cash generation, growth, and deleveraging are all positives.

Steel stocks have recently experienced a slow correction. Following the recent massive run-up, the commodity landscape has also shown signs of exhaustion. This is due, in part, to Chinese actions. Nonetheless, CLSA believes Tata Steel is a good buy.

Recent Chinese news included regulators limiting participants pushing up commodity prices and releasing state reserves of key metals such as aluminium and copper. Following this action, copper fell to a multi-week low. Credit Suisse and Morgan Stanley downgraded some steel stocks about a fortnight ago, stating that the Chinese government’s actions do not bode well for the metals space.

CLSA, on the other hand, continues to be bullish on one steel stock in particular, Tata Steel. They appreciate the company’s emphasis on cash generation, cost reduction, and growth.

The company has generated significant free cash flow in the last year, which it has used to fund its deleveraging efforts. According to them, Europe should be self-sufficient in cashflows in the near future. CLSA also observes a significant improvement in return ratios.

They are concerned about rising carbon costs, which they see as a medium-term issue. Carbon costs had a $40/tn impact in Q4.

Following its Q4 results, the company also announced a resumption of growth CAPEX. CLSA claims that now that the Balance Sheet concerns have been addressed, the company’s focus is back on growth, and it is well-positioned in the current Steel cycle.

Meanwhile, the metal index fell for the fourth trading day in a row. as China promises to release reserves to alleviate fears of a shortfall

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