What is TATASTLBSL.NS's Intrinsic value?

Tata Steel BSL Ltd (TATASTLBSL.NS) Intrinsic Value Analysis

Executive Summary

As of July 16, 2025, Tata Steel BSL Ltd's estimated intrinsic value ranges from $72.06 to $269.31 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $269.31 +214.4%
Discounted Cash Flow (5Y) $237.58 +177.4%
Dividend Discount Model (Multi-Stage) $72.06 -15.9%
Dividend Discount Model (Stable) $226.12 +164.0%
Earnings Power Value $259.24 +202.7%

Is Tata Steel BSL Ltd (TATASTLBSL.NS) undervalued or overvalued?

With the current market price at $85.65, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Tata Steel BSL Ltd's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 7.5% 8.0%
Equity market risk premium 6.9% 7.9%
Adjusted beta 2.12 2.22
Cost of equity 22.2% 26.1%
Cost of debt 9.8% 10.6%
Tax rate 0.0% 6.0%
Debt/Equity ratio 1.15 1.15
After-tax WACC 15.6% 17.5%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 16.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $214,186 (FY03-2021) to $365,980 (FY03-2031)
  • Net profit margin expansion from 12% to 12%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $238 $310,034M 51.8%
10-Year Growth $269 $344,730M 26.6%
5-Year EBITDA $297 $374,872M 60.1%
10-Year EBITDA $304 $383,168M 33.9%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 24.2%
  • Long-term growth rate: 0.5%
  • Fair value: $72.06 (-15.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 26.1% (Low) to 22.2% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $175 to $277
  • Selected fair value: $226.12 (164.0% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $54,943M
Discount Rate (WACC) 17.5% - 15.6%
Enterprise Value $314,520M - $352,923M
Net Debt $50,256M
Equity Value $264,264M - $302,667M
Outstanding Shares 1,093M
Fair Value $242 - $277
Selected Fair Value $259.24

Key Financial Metrics

Metric Value
Market Capitalization $93653M
Enterprise Value $143910M
Trailing P/E 1.31
Forward P/E 3.43
Trailing EV/EBITDA 7.90
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 1.15

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $80.79
Discounted Cash Flow (5Y) 25% $59.39
Dividend Discount Model (Multi-Stage) 20% $14.41
Dividend Discount Model (Stable) 15% $33.92
Earnings Power Value 10% $25.92
Weighted Average 100% $214.44

Investment Conclusion

Based on our comprehensive valuation analysis, Tata Steel BSL Ltd's intrinsic value is $214.44, which is approximately 150.4% above the current market price of $85.65.

Key investment considerations:

  • Strong projected earnings growth (12% to 12% margin)
  • Consistent cash flow generation

Given these factors, we believe Tata Steel BSL Ltd is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.