Tata Steel: profit up 18.2% but revenue growth slowed to 11.6% – the valuation cushion has almost gone

Tata Steel reported results for the second quarter of fiscal 2027 (July-September 2026). Revenue was 649.7 bn rupees (+11.6% year on year), EBITDA 105.3 bn (+26.5%) and net profit 36.7 bn (+18.2%). Revenue growth slowed from the previous quarter (+14.5%), while the EBITDA margin rose to 17.3% from 15.3%. Our conclusion: fairly valued – EV/EBITDA of 8.4 against its own three-year average of 8.8, a discount to history of just 4%. Our view: the share is fairly valued; no portal model for this share; EV/EBITDA 8.4 against a 3-year average of 8.8, in line with its history.

Our view: is there upside

Our view in numbers

Key takeaways

— Revenue added 11.6% year on year but slowed from 14.5% a quarter earlier

— EBITDA rose 26.5% and the margin climbed to 17.3% from 15.3%

— Net profit rose 18.2%, but its margin is only 5.6%

— Net debt has risen by 77.0 bn rupees since March, to 837.7 bn

— Leverage of 2.27x EBITDA LTM is a level, not a trend

— A dividend yield of 2.1% is modest against the key rate

— EV/EBITDA of 8.4 against its own 8.8 average is a discount of just 4%

Key figures, INR bn

Revenue added 11.6% year on year but slowed from 14.5% a quarter earlier

Revenue for the second quarter of fiscal 2027 was 649.7 bn rupees, 11.6% more than a year earlier. A quarter earlier, in the first quarter of fiscal 2027, growth was 14.5%, so the pace slowed. The slowdown comes off a high base: a year ago the quarter was already growing 8.0%.

In absolute terms the quarter remains strong: 649.7 bn is the highest of all quarters shown in the reporting. The previous peak was in the first quarter of fiscal 2027 (626.9 bn). So slower growth does not mean a decline – revenue keeps setting quarterly highs.

What exactly supported revenue is not disclosed in the facts: there is no segment or volume breakdown. For a holder what matters is different – the company has kept double-digit growth for a third consecutive quarter, and the slowdown so far is a few percentage points, not a reversal.

EBITDA rose 26.5% and the margin climbed to 17.3% from 15.3%

EBITDA for the reported quarter was 105.3 bn rupees, 26.5% more than a year earlier. That is faster than revenue (+11.6%), so the EBITDA margin rose to 17.3% from 15.3% a year earlier. The 2 percentage point margin gain is the main operating result of the quarter.

Operating profit was 67.5 bn rupees. The gap between EBITDA and operating profit – 37.9 bn – is depreciation, which absorbs more than a third of EBITDA. That is why net profit grows more slowly than EBITDA.

The durability of the margin is the key question. The facts give no cost breakdown, so it is impossible to say what produced the gain: steel prices, raw materials or capacity utilisation. If the 17.3% margin holds for another quarter, it will confirm the gain is not one-off.

Net profit rose 18.2%, but its margin is only 5.6%

Net profit for the quarter was 36.7 bn rupees, 18.2% more than a year earlier. Growth is slower than EBITDA (+26.5%) because depreciation and interest absorb a significant part of the operating result. The net margin rose to 5.6% from 5.3% – a modest gain.

Of 105.3 bn of EBITDA, roughly a third reaches net profit of 36.7 bn. That ratio is typical for capital-intensive steelmaking, but it means even a strong EBITDA quarter delivers a moderate profit per share.

The facts name no one-off items, so the profit gain cannot be explained by one-off gains or charges. Profit grew together with the operating result, which is a healthier signal than growth from asset sales.

Net debt has risen by 77.0 bn rupees since March, to 837.7 bn

Net debt at 30 September 2026 was 837.7 bn rupees. Since 31 March 2026 it has risen from 760.7 bn, i.e. by 77.0 bn. Over twelve months the change is far smaller: from 828.5 bn at 30 September 2025 – plus 9.2 bn.

The half-year debt increase is normal for steelmaking, where capital spending and working capital need cash between reporting dates. But it means part of quarterly EBITDA goes to servicing and growing debt rather than to shareholders.

The ratio of net debt to trailing twelve-month EBITDA is 2.27. That is a moderate level for the industry, but it cannot be compared with an earlier value: the facts give no prior figure. So saying leverage rose or fell would be wrong – only the level itself can be stated.

Leverage of 2.27x EBITDA LTM is a level, not a trend

The ratio of net debt to trailing twelve-month EBITDA is 2.27. With LTM EBITDA of 369.2 bn rupees and net debt of 837.7 bn, the company needs a little over two years of current EBITDA to repay its debt. For steelmaking that is acceptable but not comfortable.

Interest expense is not separately disclosed in the facts, so it is impossible to say how much EBITDA goes to debt service. However, the gap between EBITDA (105.3 bn) and operating profit (67.5 bn) is mostly depreciation, not interest – so debt service is not yet eating the operating result.

The main risk is further debt growth. If net debt keeps rising at the pace seen since March (+77.0 bn in half a year), the ratio to EBITDA will increase even with stable profit. That limits room for dividends and buybacks.

A dividend yield of 2.1% is modest against the key rate

The trailing twelve-month dividend yield is 2.1%. With a market capitalisation of 2,353.9 bn rupees, that means the company paid shareholders about 49.7 bn rupees. For a capital-intensive steelmaker that is a moderate payout.

Our estimate for the current year's dividend is a yield of about 2.1%, if profit stays at the LTM level (116.0 bn rupees). The payout depends on the payout ratio, which the company does not disclose in the facts, and on profit: with LTM net profit of 116.0 bn and a payout of 49.7 bn, the ratio is about 43%. That is an average level for the industry.

A yield of 2.1% is below the key rate, which remains high in India. For an income-oriented investor, the Tata Steel dividend is not the main argument. The payout could be cut by rising debt: the more cash goes to capital spending and debt service, the less remains for dividends.

EV/EBITDA of 8.4 against its own 8.8 average is a discount of just 4%

EV/EBITDA for the trailing twelve months is 8.4. Its own three-year average is 8.8, so the share trades at a 4% discount to its history. That is within 5%, so we call the valuation in line with history, not cheap or expensive.

P/E LTM is 20.3, which is fairly high for steelmaking. The gap between EV/EBITDA and P/E is explained by debt: EV includes net debt of 837.7 bn, while profit is after interest and depreciation. A high P/E with a moderate EV/EBITDA is a sign that leverage is weighing on earnings per share.

A 4% discount leaves no cushion. For the share to become noticeably cheaper than its history, either EBITDA must rise without debt growing, or the price must fall. At current levels the valuation is neutral: the market has already priced in both profit growth and leverage.

Valuation on the latest reported figures

Bottom line

The quarter was strong operationally: EBITDA rose 26.5%, the margin climbed to 17.3%, and revenue set a record. But revenue growth slowed, the net margin remains low (5.6%), and net debt has risen by 77.0 bn since March. The valuation is neutral: EV/EBITDA of 8.4 against its own 8.8 average is a discount of just 4%, leaving almost no cushion. Our conclusion: fairly valued. Our view: the share is fairly valued; no portal model for this share; EV/EBITDA 8.4 against a 3-year average of 8.8, in line with its history.