Tata Steel to Set Up 3mtpa Electric Arc Furnace at Port Talbot
Tata Steel has announced a proposal to set up a 3 million tonne per annum (mtpa) Electric Arc Furnace (EAF) at its Port Talbot steel making facility in the UK, with a capital expenditure (capex) of GBP 1.25 billion. The proposed project will receive a GBP 500 million grant (40% of the project cost) from the UK government and adequate policy support for a smooth transition to green steel making in the UK at a competitive landscape.
The first stage of the process is complete with this agreement, and consultations with unions involved are expected to close in the next three months. Capex is planned over the next three years post successful consultation and subject to relevant regulatory approvals.
Benefits of the Transition
We believe that the Tata Steel UK (TSUK) transition is EPS accretive for the following reasons:
- Current cash losses will end, as the company will import substrate instead of producing it at old facilities.
- There will be one-time costs, but TSUK is expected to be in a better situation than in the earlier case of recurring cash burn.
- Volatility in coking coal prices will not directly affect TSUK earnings.
- Energy costs are likely to fall as the UK moves towards renewable sources.
Outlook
We revise our FY25E EBITDA estimates upwards by 5% to Rs 411 billion and introduce FY26E earnings estimates. We maintain a ‘Buy’ rating at a revised target price of Rs 144 (Rs 137 earlier), assigning an EV/EBITDA multiple of 5x for FY25E EBITDA for Tata Steel Europe (TSE).
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