Capex Surge Positions

TATASTEEL

for Scale, but Leverage Risks Rise

’s shares have risen ~6% over the past three sessions after the board approved multiple expansion projects, an acquisition, and a strategic MoU. These initiatives strengthen the company’s long‑products portfolio, deepen raw‑material integration, and accelerate its transition toward low‑carbon steelmaking. However, the aggressive capex cycle comes at a time of weak steel margins, raising concerns about leverage and execution. The centrepiece is a 4.8 mtpa expansion at Neelachal Ispat Nigam Ltd, taking capacity from 1 mtpa to 5.8 mtpa. This sharply increases Tata Steel’s exposure to long products—a segment that forms 55–60% of India’s steel demand but only ~15% of Tata Steel’s output today. This shift aligns the company with a structurally higher‑margin, retail‑driven market. Two additional projects enhance downstream capabilities: - 2.5 mtpa thin slab caster & rolling mill at Meramandali, Odisha - 0.7 mtpa HRPGL line at Tarapur, Maharashtra The HRPGL unit will produce advanced automotive steel grades currently imported, improving domestic substitution and margin mix. The proposed 1 mtpa HIsarna plant is a breakthrough low‑carbon steelmaking process that eliminates coke and uses lower‑grade ore and slag. With ₹3,000/tonne cost savings and Tata Steel holding the patent, successful commercialisation could create a long‑term competitive moat. Tata Steel will acquire 50.01% of Thriveni Pellets for ₹636 crore, securing supply from a 4 mtpa pellet plant near Kalinganagar. The MoU with Lloyds Metals opens access to Gadchiroli iron ore, supports Lloyds’ upcoming steel plant, and explores a 6 mtpa greenfield JV—marking Tata Steel’s entry into western India. Capex of ₹45,000–50,000 crore over 3–4 years (excluding Lloyds JV) comes amid depressed margins. Net debt/EBITDA is 3x (Q2FY26) and must fall to the 2.75–3x target. Valuations at 6.5–7x FY27 EV/EBITDA are near long‑term averages, making domestic demand recovery critical for near‑term stock performance.