Copyright © HT Digital Streams Limited All rights reserved. Tata Steel is embarking on a very high capital rate at a time when steel margins are under pressure, thus exposing the company to financial risk, as per ICICI Securities. (File Photo: Reuters) Summary The steelmaker’s board approved a sweeping capital boost that approved capacity expansion, higher-value products and a breakthrough low-carbon technology, lifting the stock but raising questions about leverage as margins remain under pressure. Shares of Tata Steel Ltd have risen about 6% in the past three trading days after its board approved a slew of projects, along with an acquisition and a memorandum of understanding (MoU). Together, these initiatives aim to improve scale, expand the product portfolio, strengthen backward and forward integration and reduce the company’s carbon footprint. Among the largest is a 4.8 million tonne per annum (mtpa) expansion project, along with associated mines, at Neelachal Ispat Nigam Ltd, which currently has a capacity of 1 mtpa. The expansion will enable Tata Steel to significantly scale up its long product portfolio, primarily to cater to the retail construction sector, a higher margin, high growth segment. Long products account for 55-60% of India’s total steel demand, even though they account for only about 15% of Tata Steel’s total production. Two other projects include a 2.5 mtpa sheet caster and rolling mill at Meramandali, Odisha, and a 0.7 mtpa hot rolled pickling and galvanizing line (HRPGL) unit at its existing facility in Tarapur, Maharashtra. The HRPGL unit will produce advanced grades of steel for the automotive segment, the demand for which is currently met through imports. Still, the most important project is the proposed 1 mtpa plant based on HIsarna technology, a low-carbon steelmaking process that uses lower-grade iron ore along with steel slag and eliminates the use of coke. Tata Steel has a patent for the technology and has been operating a pilot plant for about a decade. The process offers cost savings of around ₹3,000 per tonne and, if successfully scaled up commercially, could provide a significant competitive advantage. In addition, Tata Steel has completed the acquisition of a 50.01% stake in Thriveni Pellets Pvt. Ltd for ₹636 crore, which would help ensure grain supply for its operations. Thriveni operates a 4 mtpa pellet plant at Jajpur, Odisha, located near Tata Steel’s Kalinganagar plant. The company has also signed an MoU with Lloyds Metals & Energy, which holds the remaining stake in Thriveni. The MoU involves cooperation in iron ore mining in Gadchiroli, Maharashtra, marking Tata Steel’s entry into Western India. It also involves supporting Lloyds in setting up its upcoming steel plant, in addition to investigating the joint development of a 6 mtpa greenfield steel plant. Despite the potential gains, Tata Steel is at risk of stretching its finances as several major projects will start simultaneously. “Tata Steel is embarking on a very high capital expenditure (capex) at a time when steel margins are being squeezed, thus exposing the company to financial risk,” an ICICI Securities report noted. The report estimates that Tata Steel will incur capital of R45,000-50,000 crore over the three to four years, excluding the Lloyds MoU. While Nuvama Institutional Equities estimates Tata Steel’s net debt/Ebitda to be comfortable at 1.7x at the end of FY28, this is dependent on a recovery in steel prices. At the end of September quarter (Q2FY26), net debt/Ebitda stood at 3x, down from 3.2x in Q1. The company aims to maintain the ratio at 2.75-3x on an ongoing basis. Tata Steel’s shares are trading at an enterprise value of 6.5-7x times various brokers’ estimated FY27 Ebitda, close to its long-term average multiple. Additionally, given subdued steel prices currently, Nuvama has cut its FY26 and FY27 estimated Ebitda by 5% and 3%, respectively. Against this backdrop, sustained growth in domestic demand is key to the stock’s near-term performance. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #mark to make Read next story