Tata Steel Downgraded to 'Sell' by MarketsMOJO Due to High Debt and Poor Growth

Tata Steel, a largecap company in the steel/sponge iron/pig iron industry, has recently been downgraded to a 'Sell' by MarketsMOJO on October 14, 2024. This decision was based on several factors, including the company's high debt to EBITDA ratio of 2.83 times, indicating a low ability to service debt. Additionally, the company has shown poor long-term growth with an annual operating profit growth rate of -7.80% over the last 5 years.
Technically, the stock is currently in a Mildly Bearish range, with a deteriorating trend since October 14, 2024, resulting in a -1.49% return. The Bollinger Band and KST technical factors also suggest a bearish trend for the stock.

However, there are some positive aspects to consider. Tata Steel has a high management efficiency with a ROCE of 15.98%. In June 2024, the company reported positive results, with PBT LESS OI(Q) at Rs 2,474.84 crore, showing a growth of 103.8%. The DEBTORS TURNOVER RATIO(HY) is also at its highest at 36.29 times, and the OPERATING PROFIT TO INTEREST(Q) is at its highest at 3.77 times.

In terms of valuation, Tata Steel has a fair valuation with a ROCE of 7.3 and a 1.6 Enterprise value to Capital Employed. The stock is currently trading at a discount compared to its average historical valuations. Over the past year, while the stock has generated a return of 26.64%, its profits have risen by 117.6%, resulting in a PEG ratio of 0.6.

It is worth noting that Tata Steel has a high institutional holding of 43.85%, indicating that these investors have better capability and resources to analyze the fundamentals of companies compared to most retail investors. With a market cap of Rs 2,00,610 crore, Tata Steel is the second biggest company in the sector, behind JSW Steel, and constitutes 18.69% of the entire sector. Its annual sales of Rs 224,452.51 crore make up 28.70% of the industry.

In conclusion, while Tata Steel has some positive aspects, such as high management efficiency and positive results, the company's high debt and poor long-term growth make it a 'Sell' according to MarketsMOJO. Investors should carefully consider these factors before making any investment decisions.