Why Tata Steel Share Price is Rising

In the ever-shifting landscape of the Indian stock market, Tata Steel share price emerged as a steady player. While many companies grapple with fluctuating market forces, Tata Steel has defied the odds, experiencing a sustained upward trajectory.

Over the past year, it has defied the broader market trend, registering a staggering 65.2% rally. This impressive surge continued in 2024, with a significant 28.9% jump.

Recently, Tata Steel share price continued its upward climb, gaining an 11.1% in the last month. This sustained growth begs the question: what's propelling this remarkable performance?

Read on to find out...

#1 Tata's Steel Green Initiative

Tata Steel is currently engaged in discussions with the Dutch government regarding a decarbonisation plan for their Netherlands factory.

According to reports, the Dutch government might offer up to Rs 269.28 billion (bn) to support the green transformation of the IJmuiden plant, which has faced criticism for its environmental impact.

The Dutch parliament authorised the government to negotiate terms for this potential support in March. This negotiation process, expected to take several months, will involve extensive due diligence, analysis, and discussions between the government and Tata Steel.

Following the separation from Tata Steel Europe in October 2021, Tata Steel Netherlands now operates as an independent company.

The IJmuiden plant, with a production capacity of seven million tonnes per year, is a major contributor to Tata Steel's European operations. The company's long-term goal in Europe is to achieve CO2-neutral steel production by 2050.

Even before this Tata Steel took a significant step towards a greener and more profitable future by signing an agreement with National Grid.

This deal ensures the construction of power infrastructure needed to run a new, 3.2-million (m) tones electric arc furnace at their Port Talbot plant by 2027.

This shift to electric arc furnaces is a major step in Tata Steel's ongoing efforts to cut costs and boost profitability across its European operations.

#2 Strong Operational Performance in India

Despite facing challenges in domestic steel pricing, the company's operational performance in India improved year-over-year (YoY). This growth is driven by a rise in production volumes and an agile business model focused on cost optimisation.

The company achieved record highs in both crude steel production (20.8 m tones) and deliveries (19.9 m tones). Notably, domestic deliveries increased by 9% YoY, capitalising on continued strong demand within the Indian market.

Despite a strong operational performance, the company's financial performance during the year was not up to the mark.

The top line and bottom line of the company suffered in FY24 due to rising steel prices.

#3 Healthy Demand Outlook

Here's how Indian steel demand is expected to progress in the coming years.

A multi-faceted approach is set to propel domestic steel demand in India. As the nation urbanises and megacities rise, significant investments in infrastructure - building new urban centers, expanding existing ones, and improving connectivity - will require vast quantities of steel for construction.

Government initiatives like reviving the capital expenditure cycle, the National Infrastructure Plan (NIP), and affordable housing schemes will act as further stimulants. These projects, encompassing roads, bridges, buildings, and other crucial infrastructure, all rely heavily on steel.

Finally, rising living standards in India will naturally lead to evolving consumption patterns. The demand for new products and services, from automobiles and appliances to modern homes with advanced features, will see steel playing a vital role in fulfilling these changing needs.

In conclusion, from infrastructure development to evolving consumer demands, steel remains a cornerstone of India's growth trajectory. The multi-faceted efforts to strengthen the Indian economy will ultimately create a ripple effect, driving up domestic steel demand.

This positions Tata Steel, a leading domestic steel producer, to capitalise on this significant opportunity.

What Next?

FY25 represents a transitional year for the company. Capital allocation will be focused on several key areas.

The primary objective is to finalise the Kalinganagar expansion project. Second, the company will begin allocating funds towards the electric arc furnace project in Ludhiana.

Finally, completion of the restructuring process in Tata Steel UK will allow the company to initiate spending on its electric arc furnace project there. These priorities are clearly defined.

The company currently assumes that if the steel market remains near its current low point, achieving cash flow neutrality will be the primary target.

However, should market conditions improve in the coming months, the company will seize any opportunity to reduce its debt burden beyond the planned capital expenditures.

Apart from this the company also has big carbon neutralisation plans.

The company's approach to decarbonisation will be calibrated based on geographical location, with a goal of achieving net-zero emissions by 2045. This multi-pronged strategy involves various pilot projects focused on avoiding or converting captured carbon emissions.

To achieve this, the company is forging partnerships with academia and leading technology firms, ensuring both environmental and economic viability.

In India the focus is on pursuing sustainability through multiple initiatives. The company is committed to responsible growth while simultaneously progressing on decarbonisation efforts.

This includes greening the energy mix, exploring nature-based solutions, and achieving carbon reductions through process improvements, direct carbon avoidance, and carbon capture & utilisation.

In the UK, the company aims to achieve a 50 m ton reduction in CO2 equivalent emissions over a decade. This will involve identifying a financially viable intermediate configuration towards a completely green steel production process.

To ensure a smooth transition, the company has already secured most of the slab and hot rolled coil substrate required for downstream operations.

Additionally, the UK arm aims to achieve a carbon emission intensity of around 0.4 tonnes CO2 per tonne of crude steel by utilising locally available scrap. This strategy will allow the company to maintain a significant market presence across various steel end-use segments in the UK.

Ultimately, the company seeks an economically and environmentally viable solution, and is working in collaboration with the UK government, which has pledged £ 500 m in support of these decarbonisation efforts.

How Tata Steel Share Price has Performed Recently

In the past five days, Tata Steel share price has rallied 7.2%. In the last month, it is up 11.1%.

In 2024, so far its share price surged 28.9% and it rallied 65.2% in the last year.

The stock touched its 52-week high of Rs 182.1 on 10 June 2024 and a 52-week low of Rs 108.2 on 26 June 2023.

About Tata Steel

Tata Steel is Asia's first integrated private steel company.

The company is primarily engaged in the business of manufacturing and selling finished steel goods.

It's present across the value chain, from the mining of iron ore and coking coal to the distribution of steel, and value-added products.

The company caters to several industries through its broad product portfolio, including automobiles, construction, agriculture, industrial, and general engineering. It has a global presence and caters to the steel needs of over 50 countries across five continents.

To know more about the company, check out Tata Steel's financial factsheet and its latest quarterly results.

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