While most Tata Group stocks faced significant headwinds in 2025, with the conglomerate losing approximately ₹3.4 lakh crore in market value, Tata Steel emerged as a standout performer. The steel major delivered impressive gains of 30.4%, adding ₹52,368 crore in market value and positioning itself as the group's joint best-performing stock alongside Tata Consumer Products.

Operational Excellence Drives Performance

Tata Steel's operational resilience has been a key driver of its strong performance. The company's asset profile continues to improve, with an increasing contribution from its higher-margin India business. The share of India volumes has grown steadily from 33% in FY15 to 68% in FY25, and is projected to reach 72% by FY28E, supporting a structurally stronger earnings mix.

The company's recently commissioned 5 million tonne per annum capacity in India is ramping up and is expected to drive a healthy 6% CAGR in domestic steel volumes over FY25 to FY28E. Additionally, Tata Steel is setting up a 0.85 million tonne electric arc furnace scheduled for commissioning in March 2026, with plans to evaluate another EAF facility.

Strategic Capacity Expansion Plans

In a recent analyst meeting, Tata Steel reaffirmed its long-term growth strategy and announced several capacity additions. The board approved the Phase 1 expansion of the NINL (Neelacal Ispat Nigam Ltd) long products facility, increasing capacity by 4.8 million tonnes per annum, from 1.1 million tonnes to 5.9 million tonnes per annum.

The company also approved the installation of 2.5 million tonnes per annum Thin Slab Caster and Rolling facilities at Tata Steel Meramandal, further enhancing finished steel capacity in flat products. To strengthen its automotive segment presence, Tata Steel approved setting up a 0.7 million tonnes per annum hot rolled pickling and galvanising line at its Cold Rolling Complex in Tarapur, Maharashtra.

Government Support Bolsters Outlook

The Indian government imposed a three-year import tariff of 11-12% on select steel products, as announced in a finance ministry order published on December 30. This measure aims to curb cheap shipments from China and provides stronger pricing protection for domestic manufacturers. Despite muted steel prices in the current calendar year, India continues to stand out as a global bright spot for steel consumption, with domestic demand growing in the lower double digits and consumption rising by approximately 8% in the first eight months of the current fiscal.

Analyst Targets and Valuation Metrics

Jefferies has raised its target price to ₹230 with a Buy rating, representing a 31% upside potential from current market levels. Axis Securities maintains a Buy call with a target of ₹195. The brokerage has increased EBITDA estimates for FY26-FY28E by 4-6% and EPS estimates by 9-11%, with FY27-FY28E EPS now 6-15% above street expectations.

Tata Steel's net debt is expected to decline by 24% cumulatively over FY25 to FY28E to approximately ₹62,800 crore, equivalent to around 9% of its market capitalisation. The stock currently trades at around 2 times FY27E price-to-book ratio, with expected return on equity of 13-18% over FY26-FY28E.

European Operations Present Challenges

While the India business shows strong momentum, Tata Steel's European operations face headwinds. The Netherlands operations may see weaker profitability in the December quarter due to lower realisations, though recovery is expected from the March quarter. UK operations remain challenging, with the earlier target of EBITDA breakeven by the March quarter appearing difficult to achieve. Jefferies factors EBITDA per tonne for Tata Steel Europe at $3, $21, and $21 for the second half of FY26, FY27, and FY28E, respectively.

Tata Steel shares have risen for six consecutive sessions, gaining nearly 10% over the same period, reflecting investor confidence in the company's strategic direction and growth prospects.

Tata Steel shares have delivered impressive gains of 10.5% over the past six trading sessions, climbing to ₹186.90 on the BSE and approaching the 52-week high of ₹187 achieved on October 29. The rally gained momentum following management's comprehensive assessment of industry challenges and detailed expansion strategy outlined by CEO T V Narendran during a New Year address to employees.

Market Performance and Stock Movement

The steel major's shares surged as much as 2.2% on Monday, bringing the stock within striking distance of its annual peak. The sustained upward movement reflects investor confidence in the company's strategic direction despite acknowledging significant industry headwinds.

Industry Challenges and Global Pressures

CEO T V Narendran provided a candid assessment of market conditions, revealing that steel prices in India fell to five-year lows during the year. The pricing pressure stemmed primarily from global factors, including protectionist trade measures and unprecedented Chinese steel exports exceeding 100 million tonnes annually—a volume nearly matching India's total steel production capacity.

The massive Chinese export volumes intensified global oversupply conditions, depressing international prices and making exports increasingly challenging for Indian steelmakers. Tata Steel's European operations faced additional strain from import duties imposed by both the US and European countries, though the domestic business remained relatively insulated from these external shocks.

Expansion Strategy and Capital Investments

Despite near-term challenges, Narendran outlined an ambitious growth strategy focused on value-added manufacturing and capacity expansion across multiple facilities. The company is investing ₹4,000 crore in two major projects at the Jamshedpur plant, where space constraints limit traditional capacity expansion.

Facility-wise Capacity Developments

The company has achieved significant capacity expansions across its manufacturing network, with several facilities either completed or nearing operational status.

Policy Support Boosts Sector Sentiment

The recent rally coincided with broader gains across domestic steel stocks, rising 4-6% since December 30 following the finance ministry's notification extending safeguard duties on steel imports. The duties, recommended by the director general of trade remedies, will be levied for three years on most flat steel product grades.

The government had previously imposed interim safeguard duties in April to curb rising imports, but the order lapsed on November 7. The extension provides policy support to domestic producers while addressing concerns about higher steel prices impacting consuming industries, particularly small and medium enterprises facing export challenges.