Tata Steel share at 52-week low: What's leading to the fall?

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The Tata Steel share price has corrected more than 20% YTD against a 13% fall in NIFTY50, and a 19% fall in BSE Metal Index. What is happening with the Tata Steel Stock? Let us look at all the reasons for the fall and what should you do as an investor?

Tata Steel Share Price is Down along with all Metal Stocks - WHY?

  • It is not only Tata Steel that is falling. The other companies in the sector have also corrected significantly.
  • Last month the government imposed 15% export duties on iron ore and some steel intermediaries. The metal-related companies are falling since then.
  • It has sent a negative signal to investors and adversely impacted the sector's capacity utilization.
  • With the increase in the export duty, other countries can increase their share in the global market as India will not be the first choice because of increased rates.
  • The price of steel and related products has increased considerably in the domestic market. The increase in export duty is an attempt by the government to discourage steel makers to export and cool off the prices in the domestic market.

Tata Steel Share Price Turned Ex-Dividend 

Another reason for the recent fall in the Tata Steel share price is related to the stock turning ex-dividend on 16 June 2022. The board has approved a Rs 51 final dividend for FY22. But how does it impact the share price?

Stock going ex-dividend means that the value of the dividend is no longer included in the share price. It happens after the company declares a dividend and announces a record date. The record date is when the stock is said to be ex-dividend.

For example, if a stock is trading at Rs 100 and declared a dividend of Rs 5, then the ex-dividend price will be Rs 95. After the stock goes past the ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment. 

Tata Steel was trading at around the Rs 1000 mark before the ex-dividend and has fallen sharply just after it to 900 levels in line with the fall in the market and dividend payout (Rs 51).

Tata Steel Share : Brokerage View:

Centrum Broking: It has given a buy call on Tata Steel with a target price of Rs 1492. The brokerage reduces FY23 EBITDA by 11% to factor in a hit of 15% export duty levied by the GoI on 21st May 2022 and higher coking coal prices. It keeps FY24 EBITDA unchanged. It arrives at a target price of Rs 1,492 (earlier Rs1,586), valuing India business at 6.0x (earlier 6.5x) FY24E EV/EBITDA and Europe & Others at 4x FY24E EV/EBITDA.

IIFL Securities: Buy on dips is recommended for positional investors as the stock lost heavily after the Government of India (GoI) imposed excise duty on steel exports. Now, the market has discounted that downside trigger, and buying interest in the stock is expected at lower levels.

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